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Hi Team,
I can across this question in the Kaplan book and I am really struggling with it. In fact I am wondering/hoping that they left some information out. Though that would probably be to easy a solution for me 🙂
The question is as follows:
Brake LTD manufactures and distributes brake discs to the automotive sector. The company operates an integrated standard cost system in which:
-Purchase of materials are recorded at standard costs
-Direct material costs and direct labour costs are variable
-Production overheads are fixed and absorbed using direct labour hoursActual and budgeted data for May are shown below:
-Budgeted direct materials per unit- 2kg at 5$ per kg
-Direct Labour- 0.5hours per unit
-Budgeted production for the month was 10,000
-22,500kgs of material were purchased
-The total standard cost of the material was 115,000$
-6,000 direct labour hours were worked of 6$ per hour
-Budgeted Fixed production overheads in the period were 240,000$
-Actual fixed production overheads in the period were 260,000$Variances calculated for May are as follows:
-Material price variance 11,250$ A
-Labour efficiency variance 1,750$ A1- Calculate the actual number of brake discs manufactured (11,500 units)
2- Calculate the actual price paid per kg of material (5.50)
3- Calculate the material usage variance (2,500 Favorable)
4- Calculate the standard rate per labour hour
5- Calculate the labour rate varianceI answered question 1,2,3. I am really struggling with question four and five. Can somebody please try and explain to me how to calculate the answers based on the information given in the questions. The answers are actually 7$ and 6,000 Favorable.
I have spent so much time on this already.I just cant seem to get it!!!
Any help would be greatly appreciated…
4. The labour efficiency variance is the difference between the actual hours worked and the standard hours for the actual production, costed at the standard cost per hour.
Here, they actually worked for 6,000 hours. The standard hours for the actual production are 11,500 units x 0.5 hours per unit = 5,750 hours.
Therefore they took 250 hours longer than they should have.
Since the efficiency variance is $1,750, it means that the standard cost per hour = 1,750 / 250 = $7 per hour.5. You can probably now do this. However, they actually worked 6,000 hours and actually paid $36,000. They should have paid $7 per hour, so a total of 6,000 x $7 = $42,000.
Therefore the labour rate variance = 42,000 – 36,000 = $6,000 favourable.
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