Standard costing - not getting correct answer

others 1391 views 2 replies

Anil

1638 Points Joined October 2007

Ardmore Enterprises uses a standard cost system in its small appliance division. The standard cost of manufacturing one unit of Zeb is as follows.

Materials – 60 pounds at $1.50 per pond $90

Labor – 3 hours at $12 per hour 36

Factory overhead – 3 hours at $ 8 per hour 24

Total standard cost per unit $150

The budgeted variable factory overhead rate is $3 per labor hour, and the budgeted fixed factory overhead is $27,000 per month. During May, Ardmore produced 1,650 units of Zeb compared to a normal capacity of 1,800 units. The actual cost per unit was as follows.

Materials – 58 pounds at $1.65 per pond $95.7

Labor – 3.1 hours at $12 per hour 37.2

Factory overhead – $39930 per 1650 units 24.20

Total standard cost per unit $157.10

What is flexible budget overhead variance for May ?

Correct Answer is $1,920 favorable.

I am getting the answer 330 unfavourable arrived as under

Actual F. oh : 39930

Actual qty * std. rate = 1650*24 = 39600

Difference of above two = 330 unvavourable

Please anyone help me solve this problem to arrive at correct answer of 1920 favourable.

Replies (2)

CA SURENDRA KUMAR RAKHECHA

Practising CA at Surat

26263 Points Joined November 2009

The question is :

What is the labor rate variance for May ?

It means we have to focus on Labour Rate.

There is no difference in labour rate because in both the cases it is Rs.12.00

OK ?

The problem is due to wrong base taken by you of OVERSEAD than correct base of LABOUR.

It means the qustion requires something else. The question seems wrong.

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Hint :

1. First of all try to understand the concepts of the formulae given in the book.

2. While solving practicals; emphasis on formulae why such formula is suitable. Also thank the person who created the formula and put yourself in the position to create that formula.

By doing so, you would be more confident.

3. Don't try to just match the answer.

4. If some mistake is found; be alert why such a wide difference is there. Solve immediately another question and check your concepts.

5. Don't forget to thank yourself after solving it to perfect stage.

Anil

1638 Points Joined October 2007

Dear Sir,

Thank you very much for your quick response.

Initially when I posted the thread I had mentioned the question wrongly as" Labor rate variance". It was my mistake. You are right in pointing out that the question seems wrong.

Actually the question pertains to "flexible budget overhead variance".

After about 10-15 minutes of posting I realised that I had put the question wrongly. I also saw that there was no response from anyone yet. Then I modified the question to flexible budget overhead variance.

It seems like your response was posted before I could modify and click submit button.

Request you to please let me know where I went wrong in my answer. I am still strugling to arrive at the right answer.

Thanks.