# Standard Costing and Variance Analysis Problems & Solution:

## Problem 1:

### 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:

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:

 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:

1. labor rate variance or Labor price variance.
2. 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.

## 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:

1. Standard quantity of materials allowed (in pounds).
2. Actual quantity of materials used (in pounds).
3. Standards hours allowed.
4. Actual hours allowed.
5. Actual direct labor rate.
6. 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 Favorable direct labor efficiency variance (\$800 variance / \$4 standard rate per direct labor hour) (200) hours ————- Actual hours worked 3,800 hours ======= Standard direct labor rate \$4.00 Unfavorable direct labor rate variance (\$760 variance / 3,800 hours actually worked) 0.20 ———— Actual direct labor rate \$4.20 ====== Standard factory overhead (4,000 units produced × \$3 standard overhead rate per unit) \$12,000 Unfavorable factory overhead variance 500 ————- Actual total factory overhead \$12,500 =======

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