Question

Texas Boots uses a standard costing system. The standard material and labor costs Exercise 3) Texas Boots uses a standard for producing each pair of boots are as follows: Materials (1.5 yards x $9.00) $13.50 Direct labor (.5 hours x $15) 7.50 During May, the company produced 7,000 pairs of boots; 10,000 yards of material were purchased for $80,000, and 11,000 yards of material were used in production. Also during May. 3,800 direct labor hours were worked at a cost of $58,900.- Required: Calculate material price and efficiency variances and labor rate and efficiency variances. Indicate whether the variances are favorable or unfavorable.

Answer 1

Materials Price Variance

= (Standard price - Actual price) * Actual quantity purchased

= (9 - 80,000/10,000) * 10,000

= 10,000 Favourable

.

Materials Quantity Variance

= (Standard Quantity allowed - Actual quantity) * Standard price

= (7,000*1.5 - 11,000) * 9

= 4,500 Unfavorable

.

Labor Rate Variance

= (Standard rate - Actual rate) * Actual hours

= (15 - 58,900/3800) * 3800

= 1900 Unfavorable

.

Labpr efficiency variance

= (Standard hours - Actual hours) * Standard rate

= (7,000*0.5 - 3800) * 15

= 4500 Unfavorable