Question

Ravena Labs., Inc. makes a single product which has the following standards: Direct materials: 2.5 ounces at $20 per ounce Direct labor: 1.4 hours at $12.50 per hour Variable manufacturing overhead: 1.4 hours at 3.50 per hour Variable manufacturing overhead is applied on the basis of standard direct labor-hours. The following data are available for October: • 3,750 units of compound were produced during the month. • There was no beginning direct materials inventory. • Direct materials purchased: 12,000 ounces for $225,000. • The ending direct materials inventory was 2,000 ounces. Direct labor-hours worked: 5,600 hours at a cost of $67,200. Variable manufacturing overhead costs incurred amounted to $18,200. • Variable manufacturing overhead applied to products: $18,375. The materials quantity variance for October is: A) $52,500 Unfavorable B) $52,500 Favorable C) $12,500 Unfavorable D) $12,500 Favorable The labor efficiency variance for October is: A) $1,400 Favorable B) $1,900 Unfavorable C) $3,750 Favorable D) $4,375 Unfavorable

Answer 1

Actual materials used for production = 12,000-2,000 = 10,000 ounces Standard quantity allowed = 3,750*2.5 = 9,375 Materials quantity variance = (Actual quantity-Standard quantity) *Standard rate Materials quantity variance = (10,000-9,375) *$20 Materials quantity variance = $12,500 Unfavorable As the actual quantity used is more than the standard quantity allowed, it leads to an Unfavorable variance. Hence, the correct option is c) $12,500 Unfavorable Standard hours = 3,750*1.4 = 5,250 hours Labor efficiency variance = (Actual hours-Standard hours)*Standard rate Labor efficiency variance = (5,600-5,250) *$12.50 Labor efficiency variance = $4,375 Unfavorable As the actual hours worked is more than the standard hours allowed, it leads to an Unfavorable variance. Hence, the correct option is D) $4,375 Unfavorable.