Question

Crystal Charm Company makes handcrafted silver charms that attach to jewelry such as a necklace or bracelet. Each charm is adorned with two crystals of various colors. Standard costs follow:

	Standard Quantity			Standard Price (Rate)			Standard Unit Cost
Silver	0.35	oz.		$	31.00	per oz.		$	10.85
Crystals	6.00			$	0.50	crystal			3.00
Direct labor	2.00	hrs.		$	20.00	per hr.			40.00

During the month of January, Crystal Charm made 1,620 charms. The company used 542 ounces of silver (total cost of $17,344) and 9,770 crystals (total cost of $4,689.60), and paid for 3,390 actual direct labor hours (cost of $66,105.00).

Required:

1. Calculate Crystal Charm’s direct materials variances for silver and crystals for the month of January.

2. Calculate Crystal Charm’s direct labor variances for the month of January.

Answer 1

1	Direct Material Price Variance
	Direct Material Price variance = ( Actual Price - Standard Price ) * Actual Quantity
	Silver
	Standard Price = $ 31 per oz
	Actual Price = ( $ 17,344 / 542 ounces ) = $ 32
	Actual Quantity = 542 ounces
	Direct Material Price Variance ( silver ) = ( $ 32 - $ 31 ) * 542 ounces
			= $ 542 Unfavorable
	Crystal
	Standard Price = $ 0.50
	Actual Price = ( $ 4,689.60 / 9,770 crystals ) = $ 0.48
	Actual Quantity = 9,770 crystals
	Direct Material Price Variance ( Crystal ) = ( $ 0.48 - $ 0.50 ) * 9,770 crystals
			= $ 195.4 Favorable
	Direct Material Quantity Variance
	Direct Material Quantity variance = ( Actual Quantity - Standard Quantity ) * Standard Price
	Silver
	Standard Price = $ 31 per oz
	Actual Quantity = 542 ounces
	Standard Quantity = 0.35 oz * 1,620 charms = 567 ounces
	Direct Material Quantity Variance ( silver ) = ( 542 ounces - 567 ounces ) * $ 31
	Crystal
	Standard Price = $ 0.50
	Actual Quantity = 9,770 crystals
	Standard Quantity = 6 crystals * 1,620 charms = 9,720 crystals
	Direct Material Quantity Variance ( Crystals ) = ( 9,770 crystals - 9,720 crystals ) * $ 0.50
2	Direct Labor Rate Variance
	Direct Labor rate variance = ( Actual rate - Standard rate ) * Actual Hours
	Standard Rate = $ 20 per hour
	Actual Rate = ( $ 66,105 / 3,390 Hours ) = $ 19.50
	Actual Hours = 3,390 hours
	Direct Labor rate variance = ( $ 19.50 - $ 20 ) * 3,390 hours
			= $ 1,695 Favorable
	Direct Labor Efficience Variance
	Direct Labor Efficiency Variance = ( Actual Hours - Standard Hours ) * Standard Rate
	Standard Rate = $ 20 per hour
	Actual Hours = 3,390 hours
	Standard Hours = ( 2 hours * 1,620 charms ) = 3,240 hours
	Direct Labor Efficiency Variance = ( 3,390 hours - 3,240 hours ) * $ 20
				= $ 3,000 Unfavorable