1. Compute the following variances for May: a. Materials price and quantity variances. b. Labor rate and efficiency variances. c. Variable overhead rate and efficiency variances. 2. How much of the $0.48 excess unit cost is traceable to each of the variances computed in (1) above. 3. How much of the $0.48 excess unit cost is traceable to apparent inefficient use of labor time?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Koontz Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May.
| Actual Cost per Unit | ||||||||
| Direct materials: | ||||||||
| Standard: 1.80 feet at $2.80 per foot | $ |
5.04 |
||||||
| Actual: 1.75 feet at $3.00 per foot | $ | 5.25 | ||||||
| Direct labor: | ||||||||
| Standard: 0.90 hours at $17.00 per hour |
15.30 |
|||||||
| Actual: 0.95 hours at $16.40 per hour | 15.58 | |||||||
| Variable |
||||||||
| Standard: 0.90 hours at $7.40 per hour | 6.66 | |||||||
| Actual: 0.95 hours at $7.00 per hour | 6.65 | |||||||
| Total cost per unit | $ |
27.00 |
$ | 27.48 | ||||
| Excess of actual cost over standard cost per unit | $ | 0.48 | ||||||
The production superintendent was pleased when he saw this report and commented: “This $0.48 excess cost is well within the 5 percent limit management has set for acceptable variances. It's obvious that there's not much to worry about with this product."
Actual production for the month was 14,500 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials.
Required:
1. Compute the following variances for May:
a. Materials price and quantity variances.
b. Labor rate and efficiency variances.
c. Variable overhead rate and efficiency variances.
2. How much of the $0.48 excess unit cost is traceable to each of the variances computed in (1) above.
3. How much of the $0.48 excess unit cost is traceable to apparent inefficient use of labor time?
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