Homework Answers
| 1. | |||||||||
| Calculation of price variance for direct materials | |||||||||
| Price variance | (Actual rate - Standard rate)*Actual quantity used | ||||||||
| Price variance | (1.05-1.15)*1420000 | ||||||||
| Price variance | $142,000 | F | |||||||
| Actual purchase price of raw material is lower than budgeted and thus variance is favorable. | |||||||||
| Calculation of quantity variance for direct materials | |||||||||
| Quantity variance | (Actual quantity - Standard quantity)*Standard rate | ||||||||
| Quantity variance | (1420000-((220000*6))*$1.15 | ||||||||
| Quantity variance | (1420000-1320000)*1.15 | ||||||||
| Quantity variance | $115,000 | U | |||||||
| Actual quantity used of material is higher than budgeted and thus variance is unfavorable. | |||||||||
| Calculation of rate variance for direct labor | |||||||||
| Rate efficiency variance | (Actual rate - Standard rate)*Actual Labor hours used | ||||||||
| Rate efficiency variance | (15-14.50)*4900 | ||||||||
| Rate efficiency variance | $2,450 | U | |||||||
| Actual labor rate is higher than budgeted and thus variance is unfavorable | |||||||||
| Calculation of efficiency variance for direct labor | |||||||||
| Efficiency variance | (Actual hours - Standard hours)*Standard rate | ||||||||
| Efficiency variance | (4900-((0.027*220000))*14.50 | ||||||||
| Efficiency variance | (4900-5940)*14.50 | ||||||||
| Efficiency variance | $15,080 | F | |||||||
| 2. | |||||||||
| The pattern of variances suggest that manager's have been making trade-offs | |||||||||
| In case of direct material the actual rate is lower and thus the quantity used for material is higher. This mean managers have compromised with quality by purchasing cheaper material. | |||||||||
| In case of direct labor the actual labor rate is higher and thus the actual hours used is lower than budgeted. This mean managers have hired skilled workers at higher price with led to lower utilisation of hours. | |||||||||
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