Question

Variance Analysis P9-A Onion Company manufactures a product known as Teardrops. Standard Costs for Direct Materials and Direct Labor (budget for one unit) Standard Quantity or Hours 3.0 pounds 4.0 hours Standard Price or Rate $ 4.00 $14.00 Standard Cost $ 12.00 56.00 Direct Materials Direct labor X х The following actual data resulted in the production of 6,000 units: a) Materials purchased 19,000 pounds at a cost of $4.20 per pound. All of the materials were used. b) Worked 23,000 direct labor hours at a total cost of $333,500. Compute the following: Material price variance Labor rate variance Material quantity variance Labor efficiency variance P9-B

Answer 1

Solution Computation of the following variances i) Material price variance =(Standard rate per material - Actual price per quantity) x Actual quantity =($4 - $4.2) x 19,000 =$3,800 Unfavourable ii) Material Quantity variance =(Standard quantity for actual output - Actual qunatity ) x Standard price = (Actual output produced x Standard quantity required per unit of output - Actual Quantity used) x $4 =(6,000 X 3 - 19,000) X $4 = $4000 Unfavourable

iii) Labor rate variance = (Standard rate per hour - Actual rate ) x Actual hours paid for |=($14 - $333,500/23000) x 23000 = ($14 x 23,000 - $333,500) | = $322,000 - $333,500 = $11,500 Unfavourable iv) Labor efficiency variance = (Standard hours for actual output - Actual hours worked) x Standard rate =(6000 x 4 -23,000) x $14 = $14,000 Favourable Conclusion Material price variance is $3,800 unfavourable Mateiral Quantity variance is $4,000 Unfavourable Labor rate variance is $11,500 Unfavourable Labor efficiency variance is $14,000 Favourable