Antuan Company Sets The Following Standard Costs For One Uni

Antuan Company Set The Following Standard Costs For One Unit Of Its Pr

Antuan Company set the following standard costs for one unit of its product. Direct materials (4.0 Ibs. @ $6.00 per Ib.) $24.00. Direct labor (1.7 hrs. @ $12.00 per hr.) $20.40. Overhead (1.7 hrs. @ $18.50 per hr.) $31.45. Total standard cost $75.85. The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level. Overhead Budget (75% Capacity) Variable overhead costs Indirect materials $15,000 Indirect labor $75,000 Power $15,000 Repairs and maintenance $30,000. Total variable overhead costs $135,000. Fixed overhead costs Depreciation—building $23,000 Depreciation—machinery $71,000 Taxes and insurance $16,000 Supervision $226,750. Total fixed overhead costs $336,750. Total overhead costs $471,750. The company incurred the following actual costs when it operated at 75% of capacity in October. Direct materials (60,500 Ibs. @ $6.20 per lb.) $375,100. Direct labor (29,000 hrs. @ $12.20 per hr.) $353,800. Overhead costs Indirect materials $41,650. Indirect labor $176,300. Power $17,250. Repairs and maintenance $34,500. Depreciation—building $23,000. Depreciation—machinery $95,850. Taxes and insurance $14,400. Supervision $226,700. Total costs $1,358,450. Calculate the direct materials cost variance, including its price and quantity variances. Calculate the direct labor cost variance, including its rate and efficiency variances. Prepare a detailed overhead variance report that shows the variances for individual items of overhead.

Sample Paper For Above instruction

The evaluation of cost variances is an essential aspect of managerial accounting, providing insights into operational efficiencies and cost management effectiveness. In this analysis, we examine the direct materials and labor variances and develop a detailed overhead variance report based on the provided data for Antuan Company. The goal is to understand the reasons behind deviations from standard costs and to identify areas for managerial intervention.

Direct Materials Cost Variance Analysis

The direct materials cost variance measures the difference between the actual costs incurred and the expected standard costs, reflecting both price and quantity discrepancies. The standard cost per unit for direct materials is $24.00, with actual costs totaling $375,100 for 60,500 pounds at $6.20 per pound.

Price Variance

The price variance is calculated as the difference between the actual price paid per pound and the standard price, multiplied by the actual quantity purchased. Using the data:

• Actual price per pound = $6.20
• Standard price per pound = $6.00
• Actual quantity purchased = 60,500 lbs.

Price Variance = (Actual Price - Standard Price) × Actual Quantity

= ($6.20 - $6.00) × 60,500 = $0.20 × 60,500 = $12,100 (Unfavorable)

Quantity Variance

The quantity variance compares the actual quantity used to produce the actual output with the standard quantity allowed for that output, valued at standard cost. Given the standard quantity per unit is 4 pounds, and the actual production data implies total units produced or consumed is derivable from the total pounds purchased and consumed. Assuming the actual purchase amount reflects actual usage, corresponding to actual production, the standard quantity for actual output is calculated as:

• Standard quantity for actual output = Standard pounds per unit × units produced.

Without explicit units produced, we assume all purchased material was used for production, amounting to 60,500 lbs. The standard quantity allowed for actual output is based on the number of units produced multiplied by 4 pounds per unit, which is not directly provided. For the purpose of this variance, calculations often depend on standard actual output, but in this context, the focus is on the variance per pound, which we have already computed as unfavorable.

Direct Labor Cost Variance Analysis

The direct labor cost variance is split into the labor rate variance and the efficiency (usage) variance. Actual data: 29,000 hours at $12.20 per hour; standard data: 1.7 hours per unit at $12.00 per hour.

Labor Rate Variance

It is calculated as:

Actual hours × (Actual rate - Standard rate) = 29,000 × ($12.20 - $12.00) = $29,000 × $0.20 = $5,800 (Unfavorable)

Labor Efficiency Variance

It is based on the difference between actual hours used and standard hours allowed for actual production, valued at the standard rate. Assuming actual production units can be calculated as:

• Units produced = Actual hours / Standard hours per unit = 29,000 / 1.7 ≈ 17,059 units.

The standard hours for actual output = units produced × 1.7 hours = approximately 17,059 × 1.7 ≈ 28,999 hours.

Efficiency Variance = Standard hours for actual output - Actual hours used × Standard rate = 28,999 - 29,000 (practically equal) × $12.00 ≈ $0, as the difference is negligible.

Overhead Variance Report

The over overhead variance analysis involves breaking down actual costs into variable and fixed overheads, comparing with budgeted costs based on applied rates.

Variable overhead actual costs: $41,650 (indirect materials) + $176,300 (indirect labor) + $17,250 (power) + $34,500 (repairs and maintenance) = $269,900, compared to budgeted variable overheads of $135,000. The excess indicates an unfavorable variance, potentially due to increased activity or inefficiencies.

Fixed overheads: actuals include $23,000 (building depreciation), $95,850 (machinery depreciation), $14,400 (taxes and insurance), and $226,700 (supervision), totaling $360,350, closely aligned with the budgeted fixed overheads ($336,750), indicating reasonable control but with some variance factors to consider.

Conclusion

The analysis reveals unfavorable direct material price variance driven by higher purchase prices, while the quantity variance cannot be concretely assessed due to limited data. The labor rate variance is also unfavorable, stemming from higher hourly wages, and efficiency variance is negligible, indicating efficient use of labor relative to standards. Overhead variances suggest increased variable costs, possibly attributable to higher activity levels or operational inefficiencies, requiring managerial review for cost control measures.

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