The scenario of STD costing and variance analysis.[@more@]

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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

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Standard Costing and Variance Analysis Problems & Solution:

Materials Variance Analysis:

Solution:

Problem 2:

Materials Variance Analysis:

Solution:

Problem 3:

Labor Variance Analysis:

Solution:

Problem 4:

Factory Overhead Variance Analysis:

Solution:

Problem 5:

Variance Analysis:

Solution:

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