Question

Problem 5 - Materials and Labor Manufacturing Variances and Analysis
	Background:
	The following information is for the standard
	and actual costs for Happy Corporation.
	Standard Costs:
	Budgeted units of production - 16000
	Standard labor hours per unit - 4 hours
	Standard labor rate - $26 per hour
	Standard material per unit - 8 pounds
	Standard material cost - $12 per pound
	Actual Costs:
	Actual production - 16,500 units
	Actual materials purchased and used
	- 130000 pounds
	Actual total material cost = $1,600,000
	Actual labor - 65,000 hours
	Actual total labor costs - $1,700,000
	Part 1 - Calculate all Materials and Labor Variances
	Mark all variances as FAVORABLE or UNFAVORABLE.
	Part 2 - Analyze all variances and share possible
	theories as to why each variance turned out the way
	it did.  Then, share your analysis and conclusion
	for how all materials and labor variances could fit
	together.

Problem 5 - Materials and Labor Manufacturing Variances and Analysis
Part 1:
Direct Materials Cost Variances
AQ	AP		AQ	SP		SQ	SP
	Direct Materials Price Variance			Direct Materials Quantity Variance
		Total Direct Materials Cost Variance
Direct Labor Cost Variances
AH	AR		AH	SR		SH	SR
	Direct Labor Rate Variance			Direct Labor Time Variance
		Total Direct Labor Cost Variance
Analysis of Materials Variances:
Analysis of Labor Variances:

Answer 1

Standard Price (SP)	12	Standard Rate (SR)	26
Actual Price (AP)	12.30769	Actual Rate (AR)	26.15385
Standard Quantity (SQ)	8	Standard Hour (SH)	4
Actual Quantity (AQ)	7.878788	Actual Hour (AH)	3.939394

Direct Material Variance
Material Price Variance	(SP - AP)X AQ	=	-2.42424242
Material Quantity/Usage Variance	(SQ - AQ) X SP	=	1.454545455
Total Material Cost Variance	(AQ X AP) – (SQ X SP)	=	0.96969697
Direct Labor Variance
Labor Rate Variance	(SR – AR) X AH	=	-0.60606061
Labor Efficiency Variance	(SH – AH) X SR	=	1.575757576
Total Labor Cost Variance	(AH x AR) – (SH x SR)	=	-0.96969697

Analysis,

Material variance, the slight increase in price is compensated by decrease in quantity used , hence resulting in a small unfavorable variance of 0.96

Labor Variance, the slight increase in rate is compensated by decrease in hours utilized used , hence resulting in a small favorable variance of 0.96

If we combine material and labor variance, it comes to be zero