Question

During June, Fraser Company’s material purchases amounted to 3,900 pounds at a price of $6.50 per pound. Actual costs incurred in the production of 1,000 units were as follows:

Direct labor:	$	83,125	($17.5 per hour)
Direct material:	$	19,240	($6.50 per pound)

The standards for one unit of Fraser Company’s product are as follows:

Direct labor:	Direct material:
Quantity, 3.3 hours per unit	Quantity, 1.9 pounds per unit
Rate, $17.3 per hour	Price, $6.00 per pound

Required:

Compute the following variances for the month of June. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

Direct material price difference

Direct material quantity difference

Direct material purchase price difference

Direct Labor rate variance

Direct labor efficiency variance

Answer 1

Solution

Direct material price difference	$           1,480.00	Unfavourable-U
Direct material quantity difference	$           6,360.00	Unfavourable-U
Direct material purchase price difference	$ 1,950.00	Unfavourable-U
Direct Labor rate variance	$               950.00	Unfavourable-U
Direct labor efficiency variance	$         25,085.00	Unfavourable-U

Working

Direct material purchase price difference
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    6.00	-	$                     6.50	)	x	3900
	-1950
	Variance		$             1,950.00			Unfavourable-U

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    6.00	-	$                     6.50	)	x	2960
	-1480
	Variance		$             1,480.00			Unfavourable-U
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	1900	-	2960	)	x	$              6.00
	-6360
	Variance		$             6,360.00			Unfavourable-U

.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                  17.30	-	$                   17.50	)	x	4750
	-950
	Variance		$                 950.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	3300	-	4750	)	x	$           17.30
	-25085
	Variance		$           25,085.00			Unfavourable-U

.

Actual DATA for		1000	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	2960	$       6.50	$          19,240.00
Direct labor	4750	$     17.50	$          83,125.00

.

Standard DATA for		1000	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 1.9 pound x 1000 Units)=1900 pound	$                   6.00	$            11,400.00
Direct labor	( 3.3 Hour x 1000 Units)=3300 Hour	$                17.30	$            57,090.00