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Standard Costs and Operating Performance Measures

Xavier Company produces a single product using direct labor hours to apply variable overhead. In June, 2,000 units were produced but actual costs differed from standards. Materials had an unfavorable price and quantity variance due to higher actual prices and more material purchased than used. Labor had a favorable rate variance but unfavorable efficiency variance. Variable overhead had unfavorable spending and efficiency variances due to higher actual costs and hours than standard.

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399 views4 pages

Standard Costs and Operating Performance Measures

Xavier Company produces a single product using direct labor hours to apply variable overhead. In June, 2,000 units were produced but actual costs differed from standards. Materials had an unfavorable price and quantity variance due to higher actual prices and more material purchased than used. Labor had a favorable rate variance but unfavorable efficiency variance. Variable overhead had unfavorable spending and efficiency variances due to higher actual costs and hours than standard.

Uploaded by

Mc Pauller
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Xavier Company produces a single product. Variable manufacturing overhead is applied to products on the basis of direct labor hours.

The standard costs for one unit of product are as follows:

Direct material: 6 ounces at $0.50 per ounce …………………………………………………………… $ 3


Direct labor: 1.8 hours at $10 per hour ………………………………………………………………….. 18
Variable manufacturing overhead: 1.8 hours at $5 per hour ……………………………………………. 9

Total standard variable cost per unit ……………………………………………………………………. $30

During June, 2,000 units were produced. The actual costs associated with June’s operations were as follows:

Material purchased: 18,000 ounces at $0.60 per ounce …………………………………………… $10,800


Material used in production: 14,000 ounces ……………………………………………………… –
Direct labor: 4,000 hours at $9.75 per hour ……………………………………………………… $39,000
Variable manufacturing overhead costs incurred ………………………………………………… $20,800

Required:

Compute the materials, labor, and variable manufacturing overhead variances.

1
SOLUTION:

MATERIALS VARIANCES

Actual Price * Actual Quantity of Inputs Standard Price x Actual Quantity of Inputs Standard Price * Standard
(AP * AQ) (SP * AQ) Quantity Allowed for Output
(SP * SQ)

$0.60 per ounce * 18,000 ounces $0.50 per ounce * 18,000 ounces $0.50 per ounce * 12,000 ounces *

= $10,800 = $9,000 = $6,000

D.M. Price Variance: $1,800 (U)

14,000 ounces * $0.50 per ounce = $7,000


used in production

D.M. Quantity Variance: $1,000 (U)

A total variance cannot be computed in this situation since the amount of materials purchased (18,000 ounces) differs from the amount
of materials used in production (14,000 ounces).

(note) 2,000 units produced in June * 6 ounces per unit = 12,000 ounces
(standard)

LABOR VARIANCES

Actual Rate * Actual Hours Worked Standard Rate * Actual Hours Worked Standard Rate * Standard Hours Allowed

2
for Output

(AR * AH) (SR * AH) (SR * SH)

$9.75 per hour * 4,000 hours $10 per hour * 4,000 hours $10 per hour * 3,600 hours *
= $39,000 = $40,000 = $36,000

D.L. Rate Variance: $ 1,000 (F) D.L. Efficiency Variance: $ 4,000 (U)

Total Variance: $ 3,000 (U)

* 2,000 units * 1.8 hours per unit = 3,600 hours


(standard)

VARIABLE MANUFACTURING OVERHEAD VARIANCES

Actual Rate * Actual Hours Worked Standard Rate * Actual Hours Worked Standard Rate * Standard Hours Allowed
for Output

(AR * AH) (SR * AH) (SR * SH)

$5 per hour * 4,000 hours $5 per hour * 3,600 hours (note)


= $ 20,800 = $20,000 = $18,000

3
Var. OH Spending Variance: $ 800 (U) Var. OH Efficiency Variance: $ 2,000 (U)

Total Variance: $ 2,800 (U)

(note) 2,000 units * 1.8 hours per unit = 3,600 hours


(standard)

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