P11-12 Landers Company manufactures a number of
products. The standards relating to one of these products are shown below,
along with actual cost data for May.
Standard
Actual
Cost
per Cost
Unit
per Unit
Direct materials:
Standard: 1.80 feet at $3.00
per foot . . . . . . . . . . . . .
$ 5.40
Actual: 1.75 feet at $3.20
per foot . . . . . . . . . . . . . . .
$ 5.60
Direct labor:
Standard: 0.90 hours at
$18.00 per hour . . . . . . . . . 16.20
Actual: 0.95 hours at
$17.40 per hour . . . . . . . . . . . .
16.53
Variable overhead:
Standard: 0.90 hours at
$5.00 per hour . . . . . . . . . . 4.50
Actual: 0.95 hours at $4.60
per hour . . . . . . . . . . . . .
4.37
Total cost per unit . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
$26.10
$26.50
Excess of actual cost over
standard cost per unit . . . . .
$0.40
The production superintendent
was pleased when he saw this report and commented: “This $0.40 excess cost is
well within the 2 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 12,000 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 $0.40
excess unit cost is traceable to each of the variances computed in (1) above.
3. How much of the $0.40
excess unit cost is traceable to apparent inefficient use of labor time?
4. Do you agree that the
excess unit cost is not of concern?
TUTORIAL PREVIEW
Alternatively, the variances can be computed
using the formulas:
Materials
quantity variance = SP (AQ – SQ)
=
$3.00 per foot (21,000 feet – 21,600 feet)
=
$1,800 F
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