Question

Kropf Incorporated has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours. The company has reported the following actual results for the product for September: Required: a. Compute the materials price variance for September. b. Compute the materials quantity variance for September. c. Compute the labor rate variance for September. d. Compute the labor efficiency variance for September. e. Compute the variable overhead rate variance for September, f. Compute the variable overhead efficiency variance for September. (indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

The question asks for computation of various variances related to materials and labor costs. Material and labor variances, as well as average variable costs, are key to managing profitability in business. Actual calculations require numerical data which is not provided.

Step-by-step explanation:

The student's question revolves around computing various variances related to materials and labor, which are key concepts in managerial accounting and cost management in a business setting. It is essential to understand these concepts to manage and control costs effectively. Variable costs such as labor and raw materials can directly affect a company's profitability. Without the actual numerical data provided, it is not possible to calculate the specific variances. Regardless, here's a brief overview of how one would generally approach these calculations:

a. Materials Price Variance: Calculate the difference between actual cost and standard cost for the actual quantity of material used.

b. Materials Quantity Variance: Determine the difference between the standard quantity expected to be used and the actual quantity used, valued at the standard price.

c. Labor Rate Variance: Find the variance by comparing the actual hourly wage rate paid and the standard wage rate, multiplied by the actual number of labor hours.

d. Labor Efficiency Variance: This is calculated by taking the difference between the standard hours for actual production and the actual hours worked, valued at the standard rate.

e. Variable Overhead Rate Variance: Compute the difference between the actual variable overhead rate and the standard rate, multiplied by the actual hours.

f. Variable Overhead Efficiency Variance: Calculate by taking the standard variable overhead rate and multiplying it by the difference between standard hours and actual hours.

We can also create a table to show outputs such as total cost and average variable cost, which helps in visualizing how costs behave concerning output. Remember, average variable costs are typically U-shaped due to the principles of economies of scale and the spreading of fixed costs over a larger number of units.

Answer 2

- The materials price variance is unfavorable because the actual price paid for materials was higher than the standard.

- The materials quantity variance is slightly unfavorable, indicating a minor inefficiency in the use of materials.

- The labor rate variance is unfavorable, meaning that the actual labor rate paid was higher than the standard rate.

- The labor efficiency variance is favorable, showing that less time was needed to produce the units than the standard allows.

- The variable overhead rate variance is favorable, as less was spent on variable overhead than the standard rate predicted.

- The variable overhead efficiency variance is favorable, meaning that the efficiency in labor also led to efficiency in variable overhead spending.

Here are the calculations for the variances along with their effects:

a. Materials Price Variance:

- Actual Cost of Raw Materials Purchased: $771,500

- Standard Cost of Raw Materials Purchased (93,100 liters at $8.10 per liter): $753,110

- Materials Price Variance: $771,500 - $753,110 = $18,390 (Unfavorable)

b. Materials Quantity Variance:

- Standard Quantity Allowed for Actual Output (10,700 units at 8.50 liters per unit): 90,950 liters

- Actual Quantity Used in Production: 90,960 liters

- Materials Quantity Variance: (90,950 - 90,960) x \$8.10 = -$81 (Unfavorable)

c. Labor Rate Variance:

- Standard Labor Cost (6,000 hours at $25.70 per hour): $154,200

- Actual Direct Labor Cost: $160,302

- Labor Rate Variance: $160,302 - $154,200 = $6,102 (Unfavorable)

d. Labor Efficiency Variance:

- Standard Hours Allowed for Actual Output (10,700 units at 0.60 hours per unit): 6,420 hours

- Actual Direct Labor Hours: 6,000 hours

- Labor Efficiency Variance: (6,420 - 6,000) x $25.70 = $10,794 (Favorable)

e. Variable Overhead Rate Variance:

- Standard Variable Overhead Cost (6,000 hours at $7.00 per hour): $42,000

- Actual Variable Overhead Cost: $35,414

- Variable Overhead Rate Variance: $35,414 - \$42,000 = $6,586 (Favorable)

f. Variable Overhead Efficiency Variance:

- Variable Overhead Efficiency Variance: (6,420 - 6,000) x $7.00 = $2,940 (Favorable)

To summarize the effects:

- The materials price variance is unfavorable because the actual price paid for materials was higher than the standard.

- The materials quantity variance is slightly unfavorable, indicating a minor inefficiency in the use of materials.

- The labor rate variance is unfavorable, meaning that the actual labor rate paid was higher than the standard rate.

- The labor efficiency variance is favorable, showing that less time was needed to produce the units than the standard allows.

- The variable overhead rate variance is favorable, as less was spent on variable overhead than the standard rate predicted.

- The variable overhead efficiency variance is favorable, meaning that the efficiency in labor also led to efficiency in variable overhead spending.

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