Question

Prime costs for Teagan's Toys to produce ping pong nets for table tops are: Actual materials purchases 320,000 pounds for $1,241,600 Actual cost (to produce 38,000 units): Standard cost (to produce 1 unit): Direct materials Direct materials 285,000 pounds 8.5 pounds @ $3.60/pound Direct labor Direct labor 84% of $180,000 labor costs .25 hour @ $16/hour 100,000 direct labor hours REQUIREMENTS Compute the following variances and indicate favorable or unfavorable. a. Direct Material Price Variance b. Direct Material Quantity Variance c. Direct Material Variance d. Direct Labor Rate Variance e. Direct Labor Efficiency Variance f. Direct Labor Variance DIRECT-MATERIAL PRICE AND QUANTITY VARIANCES ACTUAL MATERIAL COST STANDARD MATERIAL COST Actual Actual Actual Standard Standard Standard Quantity ´ Price Quantity ´ Price Quantity ´ Price ´ ´ ´ a. Direct-material ´ price variance b. Direct-material c. Direct Material Variance quantity variance DIRECT-LABOR PRICE AND QUANTITY VARIANCES ACTUAL LABOR COST STANDARD LABOR COST Actual Actual Actual Standard Standard Standard Hours ´ Price Hours ´ Price Hours ´ Price ´ ´ ´ d. e. Direct-labor Direct-labor rate variance efficiency variance f. Direct-labor variance

Answer 1

(A)

Material price variance = actual quantity x (standard price - actual price)

= 320000 x ($3.60 - $3.88)

= $89600 Unfavorable

Where,

Actual price = material cost paid/units of material purchased

= $1241600/320000= $3.88

(B)

Material quantity variance = standard price x (standard quantity - actual quantity)

= $3.60 x (323000 - 320000)

= $10800 Favorable

Where,

Standard quantity = actual output x standard quantity per unit of output

= 38000 x 8.5 = 323000 pounds

(C)

Total direct material variance = (standard quantity x standard price) - (actual quantity x actual price)

= (323000 x $3.60) - (320000 x $3.88)

= $1162800 - $1241600

= $78800 Unfavorable

(D)

Labor rate variance = actual hours x (standard rate - actual rate)

= 100000 x ($16 - $15.12)

= $88000 Favorable

Where,

Actual rate = actual labor cost/actual hours

= $151200/100000 = $15.12