Problem 8-20B Basic Variance Analysis: The Impact of Variances on Unit Costs [LO8-4, LO8-5, LO8-6]
Perry Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May:
Standard Cost per Unit
Actual Cost per Unit
Direct materials:
Standard: 80 feet at $1.80 per foot
Actual: 1.75 feet at $2.20 per foot
Direct labor:
Standard: 0.90 hours at $19.00 per hour
Actual: 0.95 hours at $18.40 per hour
Variable overhead:
Standard: 0.90 hours at $6.40 per hour
Actual: 0.95 hours at $6.00 per hour
Total cost per unit
$26.10
$27.03
Excess of actual cost over standard cost per unit
$0.93
The production superintendent was pleased when she saw this report and commented: "This $0.93 excess cost is well within the 5 percent limit management has set for acceptable variances. It's obvious that there's not much to worry about with this product."
Actual production for the month was 12,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials.
Required: Compute the following variances for May:
Materials price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance))
Materials quantity variance: 1,080 U
Materials price variance: 8,400 U