Standard Costing and Variance Analysis Problems & Solution:
Problem 1:
Materials Variance Analysis:
The Schlosser Lawn Furniture Company uses 12 meters of aluminum pipe at $0.80 per meter as standard for the production of its Type A lawn chair. During one month’s operations, 100,000 meters of the pipe were purchased at $0.78 a meter, and 7,200 chairs were produced using 87,300 meters of pipe. The materials price variance is recognized when materials are purchased.
Required: Materials price and quantity variances.
Solution:
Meters of pipe | Unit Cost | Amount | |
Actual quantity purchased | 100,000 | $0.78 actual | $78,000 |
actual quantity purchased | 100,000 | $0.80 standard | $80,000 |
———– | ———– | ———– | |
Materials purchase price variance | 100,000 | $(0.02) | $(2,000) fav. |
======= | ======= | ======= | |
Actual quantity used | 87,300 | 0.80 standard | $69,840 |
Standard quantity allowed | 86,400 | 0.80 standard | $69120 |
————- | ————- | ————- | |
Materials quantity variance | 900 | 0.80 | $720 Unfav |
======= | ======= | ======= |
Problem 2:
Materials Variance Analysis:
The standard price for material 3-291 is $3.65 per liter. During November, 2,000 liters were purchased at $3.60 per liter. The quantity of material 3-291 issued during the month was 1775 liters and the quantity allowed for November production was 1,825 liters. Calculate materials price variance, assuming that:
Required: Materials price variance, assuming that:
- It is recorded at the time of purchase (Materials purchase price variance).
- It is recorded at the time of issue (Materials price usage variance).
Solution:
Liters | Unit cost | Amount | |
Actual quantity purchased | 2,000 | 3.60 actual | $7,200 |
Actual quantity purchased | 2,000 | 3.65 standard | 7,300 |
——— | ————- | ——— | |
Materials purchase price variance | 2,000 | $ (0.05) | $(100) fav. |
====== | ====== | ====== | |
Actual quantity used | 1775 | 3.60 actual | $6390.00 |
Actual quantity used | 1775 | 3.65 standard | $6478.75 |
——– | ———– | ———– | |
Materials price usage variance | 1775 | $(0.05) | (88.75) |
====== | ====== | ======= |
Problem 3:
Labor Variance Analysis:
The processing of a product requires a standard of 0.8 direct labor hours per unit for Operation 4-802 at a standard wage rate of $6.75 per hour. The 2,000 units actually required 1,580 direct labor hours at a cost of $6.90 per hour.
Required: Calculate:
- labor rate variance or Labor price variance.
- Labor efficiency or usage or quantity variance.
Solution:
Time | Rate | Amount | |
Actual hours worked | 1,580 | $6.90 actual | $10,902 |
Actual hours worked | 1.580 | $6.75 standard | 10,665 |
——– | ——– | ——– | |
Labor rate variance | 1,580 | $0.15 | $237 unfav. |
===== | ===== | ===== | |
Actual hours worked | 1,580 | $6.75 standard | $10,665 |
Standard hours allowed | 1,600 | $6.75 standard | $10,800 |
———- | ———— | ———– | |
Labor efficiency variance | (20) | 6.75 standard | $(135) fav. |
====== | ====== | ====== |
Problem 4:
Factory Overhead Variance Analysis:
The Osage Company uses a standard cost system. The factory overhead standard rate per direct labor hour is:
Fixed: | $4,500 / 5,000 hours | = | $0.90 |
Variable: | $7,500 / 5,000 hours | = | $1.50 |
——– | |||
$2.40 |
For October, actual factory overhead was $11,000 actual labor hours worked were 4,400 and the standard hours allowed for actual production were 4,500.
Required: Factory overhead variances using two, three and four variance methods.
Solution:
Two Variance Method: |
||
Actual factory overhead | $11,000 | |
Budgeted allowance based on standard hours allowed: | ||
Fixed expenses budgeted | $4,500 | |
Variable expenses (4,500 standard hours allowed × $1.50 variable overhead rate) | $6,750 | |
———– | $11,250 | |
———– | ||
Favorable controllable variance | $ (250) fav. | |
====== | ||
Budgeted allowance based on standard hours allowed | $11,250 | |
Overhead charged to production (4,500 standard hours allowed × $2.40 standard rate) | $10,800 | |
———— | ||
Unfavorable volume variance | $450 unfav. | |
====== | ||
Three Variance Method: |
||
Actual factory overhead | $11,000 | |
Budgeted allowance based on actual hours worked: | ||
Fixed expenses budgeted | $4,500 | |
Variable expenses (4,400 actual hours worked × $1.50 variable overhead rate) | $6,600 | |
———– | $11,100 | |
———– | ||
Favorable spending variance | $ (100) fav. | |
====== | ||
Budgeted allowance based on actual hours worked | $11,100 | |
Actual hours worked × Standard overhead rate (4,400 hours × $2.40) | $10,560 | |
———— | ||
Unfavorable spending variance | $540 unfav. | |
====== | ||
Actual hours worked × Standard overhead rate (4,400 hours × $2.40) | $10,560 | |
Overhead charged to production (4,500 standard hours allowed × $2.40 standard rate) | $10,800 | |
———– | ||
Favorable efficiency variance | $ (240) fav. | |
===== | ||
Four Variance Method: |
||
Actual factory overhead | $11,000 | |
Budgeted allowance based on actual hours worked: | ||
Fixed expense budgeted | $4,500 | |
Variable expenses (4,400 actual hours worked × $1.50 variable overhead rate) | $6,600 | |
———– | $11,100 | |
———– | ||
Favorable spending variance | $ (100) fav. | |
====== | ||
Budgeted allowance based on actual hours worked | $11,100 | |
Budgeted allowance based on standard hours allowed | $11,250 | |
———– | ||
Favorable variable overhead efficiency variance | $ (150) fav. | |
====== | ||
Actual hours × fixed overhead rate (4,400 actual hours × $0.90 fixed overhead rate) | $3,960 | |
Standard hours allowed × fixed overhead rate (4,500 actual hours × $0.90) | 4,050 | |
———– | ||
Favorable fixed overhead efficiency variance | $ (90) fav. | |
====== | ||
Normal capacity hours (5000) × Fixed overhead rate ($0.90) | $4,500 | |
Actual hours worked (4,400) × Fixed overhead rate ($0.90) | $3,960 | |
———— | ||
Unfavorable Idle capacity variance (600 hours × $0.90) | $540 unfav. | |
====== |
Problem 5:
Variance Analysis:
On May 1, Bovar Company began the manufacture of a new mechanical device known a “Dandy.” The company installed a standard cost system in accounting for manufacturing costs. The standard costs for a unit of Dandy are:
Materials: 6 lbs. at $1 per lb. | $ 6.00 |
Direct labor: 1 hour at $4 per hour | $ 4.00 |
Factory overhead: 75% of direct labor cost | $ 3.00 |
———– | |
Total | $13.00 |
====== |
The following data were obtained from Bovar’s record for may:
Actual production of Dandy | 4,000 units |
Units sold of Dandy | 2,500 |
Sales | $50,000 |
Purchases (26,000 pounds) | 27,300 |
Materials price variance (applicable to May purchase) | $1,300 unfavorable |
Materials quantity variance | 1,000 unfavorable |
Direct labor rate variance | 760 unfavorable. |
Direct labor efficiency variance | 800 favorable |
Factory overhead total variance | 500 unfavorable |
Required:
- Standard quantity of materials allowed (in pounds).
- Actual quantity of materials used (in pounds).
- Standards hours allowed.
- Actual hours allowed.
- Actual direct labor rate.
- Actual total factory overhead.
Solution:
Actual production | 4,000 units |
Standard materials per unit | 6 pounds |
———— | |
Standard quantity of materials allowed | 24,000 pounds |
======= | |
Standard quantity of materials allowed | 24,000 pounds |
Unfavorable materials quantity variance ($1,000 variance / $1 standard price per pound) | 1,000 pounds |
————- | |
Actual quantity of materials used | 25,000 pounds |
======== | |
Actual production | 4,000 units |
Standard hours per unit | 1 hour |
———— | |
Standard hours allowed | 4,000 hours |
======== | |
Standard hours allowed | 4,000 hours |
Favorable direct labor efficiency variance ($800 variance / $4 standard rate per direct labor hour) | (200) hours |
————- | |
Actual hours worked | 3,800 hours |
======= | |
Standard direct labor rate | $4.00 |
Unfavorable direct labor rate variance ($760 variance / 3,800 hours actually worked) | 0.20 |
———— | |
Actual direct labor rate | $4.20 |
====== | |
Standard factory overhead (4,000 units produced × $3 standard overhead rate per unit) | $12,000 |
Unfavorable factory overhead variance | 500 |
————- | |
Actual total factory overhead | $12,500 |
======= |
You may also be interested in other articles from “standard costing and variance analysis” chapter
- Standard Costs and Management By Exception
- Setting Standard Costs – Ideal Versus Practical Standards
- Direct Materials Price and Quantity Standards
- Direct Materials Price Variance
- Direct Materials Quantity Variance
- Direct Labor Rate and Efficiency Standards
- Direct Labor Rate/Price Variance
- Direct Labor Efficiency | Usage | Quantity Variance
- Manufacturing Overhead Standards
- Overall or net factory overhead variance.
- Controllable variance
- Volume variance
- Spending variance
- Idle capacity variance
- Efficiency variance
- Spending variance
- Variable efficiency variance
- Fixed efficiency variance
- Idle capacity variance
- Mix and Yield Variance – Definition and Explanation
- Materials Mix and Yield Variance
- Labor Yield Variance
- Factory Overhead Yield variance
- Variance Analysis and Management By Exception
- Managerial importance and usefulness of variance analysis
- Advantages and Disadvantages of Standard Costing System
- Standard Costing Discussion Questions and Answers
- Standard Costing and Variance Analysis Formulas
- Standard Costing and Variance Analysis Problems and Solution
- Standard Costing and Variance Analysis Case Study
Other Related Accounting Articles:
- Factory Overhead Idle Capacity Variance
- Factory Overhead Spending Variance
- Overall or Net Factory Overhead Variance
- Direct Labor Rate | Price Variance rate
- Direct Labor Efficiency Variance
- Direct Labor Standards
- Direct Materials Quantity Variance
- Standard Costing and Variance Analysis Case Study
- Direct Materials Price Variance
- Advantages and Disadvantages of Standard Costing and Variance Analysis
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