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:
Actual quantity purchased
Meters of
pipe
100,000
actual quantity purchased
100,000
Materials purchase price variance
Actual quantity used
Standard quantity allowed
Materials quantity variance
----------100,000
=======
87,300
86,400
------------900
=======
Unit Cost
Amount
$0.78 actual
$78,000
$0.80
$80,000
standard
--------------------$(0.02)
$(2,000) fav.
=======
=======
0.80 standard
$69,840
0.80 standard
$69120
------------------------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:
1. It is recorded at the time of purchase (Materials purchase price variance).
2. It is recorded at the time of issue (Materials price usage variance).
Solution:
Actual quantity purchased
Actual quantity purchased
Liters
2,000
2,000
---------
Unit cost
3.60 actual
3.65 standard
-------------
Amount
$7,200
7,300
---------
Materials purchase price variance
Actual quantity used
Actual quantity used
Materials price usage variance
2,000
======
1775
1775
-------1775
======
$ (0.05)
$(100) fav.
======
======
3.60 actual
$6390.00
3.65 standard $6478.75
--------------------$(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 4802 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:
1. labor rate variance or Labor price variance.
2. Labor efficiency or usage or quantity variance.
Solution:
Time
1,580
1.580
-------1,580
=====
1,580
1,600
---------(20)
======
Actual hours worked
Actual hours worked
Labor rate variance
Actual hours worked
Standard hours allowed
Labor efficiency variance
Rate
Amount
$6.90 actual
$10,902
$6.75 standard
10,665
--------------$0.15
$237 unfav.
=====
=====
$6.75 standard $10,665
$6.75 standard $10,800
---------------------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:
Variable:
$4,500 / 5,000 hours
$7,500 / 5,000 hours
=
=
$0.90
$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
Budgeted allowance based on standard hours allowed:
Fixed expenses budgeted
Variable expenses (4,500 standard hours allowed × $1.50 variable
overhead rate)
$11,000
$4,500
$6,750
-----------
Favorable controllable variance
Budgeted allowance based on standard hours allowed
Overhead charged to production (4,500 standard hours allowed × $2.40
standard rate)
$11,250
----------$ (250)
fav.
======
$11,250
$10,800
-----------$450
unfav.
======
Unfavorable volume variance
Three Variance Method:
Actual factory overhead
Budgeted allowance based on actual hours worked:
Fixed expenses budgeted
Variable expenses (4,400 actual hours worked × $1.50 variable
overhead rate)
$11,000
$4,500
$6,600
-----------
Favorable spending variance
Budgeted allowance based on actual hours worked
Actual hours worked × Standard overhead rate (4,400 hours × $2.40)
Unfavorable spending variance
Actual hours worked × Standard overhead rate (4,400 hours × $2.40)
Overhead charged to production (4,500 standard hours allowed × $2.40
standard rate)
$11,100
----------$ (100)
fav.
======
$11,100
$10,560
-----------$540
unfav.
======
$10,560
$10,800
----------$ (240)
fav.
=====
Favorable efficiency variance
Four Variance Method:
Actual factory overhead
Budgeted allowance based on actual hours worked:
Fixed expense budgeted
$11,000
$4,500
Variable expenses (4,400 actual hours worked × $1.50 variable
overhead rate)
$6,600
-----------
Favorable spending variance
Budgeted allowance based on actual hours worked
Budgeted allowance based on standard hours allowed
Favorable variable overhead efficiency variance
Actual hours × fixed overhead rate (4,400 actual hours × $0.90 fixed
overhead rate)
Standard hours allowed × fixed overhead rate (4,500 actual hours × $0.90)
Favorable fixed overhead efficiency variance
Normal capacity hours (5000) × Fixed overhead rate ($0.90)
Actual hours worked (4,400) × Fixed overhead rate ($0.90)
Unfavorable Idle capacity variance (600 hours × $0.90)
$11,100
----------$ (100)
fav.
======
$11,100
$11,250
----------$ (150)
fav.
======
$3,960
4,050
----------$ (90) fav.
======
$4,500
$3,960
-----------$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.
Direct labor: 1 hour at $4 per hour
Factory overhead: 75% of direct labor cost
Total
$ 6.00
$ 4.00
$ 3.00
----------$13.00
======
The following data were obtained from Bovar's record for may:
Actual production of Dandy
Units sold of Dandy
Sales
Purchases (26,000 pounds)
Materials price variance (applicable to May purchase)
Materials quantity variance
Direct labor rate variance
Direct labor efficiency variance
4,000 units
2,500
$50,000
27,300
$1,300 unfavorable
1,000 unfavorable
760 unfavorable.
800 favorable
Factory overhead total variance
500 unfavorable
Required:
1.
2.
3.
4.
5.
6.
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
Standard materials per unit
Standard quantity of materials allowed
4,000 units
6 pounds
-----------24,000 pounds
=======
24,000 pounds
Standard quantity of materials allowed
Unfavorable materials quantity variance ($1,000 variance / $1 standard price
1,000 pounds
per pound)
------------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
(200) hours
per direct labor hour)
------------Actual hours worked
3,800 hours
=======
Standard direct labor rate
$4.00
Unfavorable direct labor rate variance ($760 variance / 3,800 hours actually
0.20
worked)
-----------Actual direct labor rate
$4.20
======
Standard factory overhead (4,000 units produced × $3 standard overhead rate
$12,000
per unit)
Unfavorable factory overhead variance
500
------------Actual total factory overhead
$12,500
=======