Question

Computation of Variable Cost Variances The following information pertains to the standard costs and actual activity for Tyler Company for September: Standard cost per unit 4 units of material A x $2.00 per unit Direct materials 1 unit of material B x $3.000 per unit 3 hours x $8.00 per hour Direct labor Activity for September Materials purchased Material A 3,400 units x $2.05 per unit 800 units x $3.10 per unit Material B Materials used Material A 3,050 units Material B 705 units Direct labor used 2,050 hours x $8.30 per hour Production output 700 units There were no beginning direct materials inventories.

Answer 1

Firstly we will solve the Material Variances :-

So formula for solving this is as follows :-

Direct Material Usage Variance [Standard Cost of Actual Quantity - Actual [Standard Cost of Standard Quantity for Actual Production - Standard Cost of Direct Material Price Variance Cost] Actual Quantity] (The difference between the Standard Price (The difference between the Standard Quantity and Actual Price for the Actual Quantity) specified for actual production and the Actual Quantity used, at Standard Purchase Price) [(SQ- AQ) x SP] [(SP - AP) x AQ] Or Or [(SQ x SP)- (AQx SP)] [(SP x AQ)-(APx AQ)]

Material Price Variance = (SP-AP)*AQ used

               For Material A = (2-2.05)*3050 = 152.5 U

                For Material B = (3-3.10)*705 = 70.5 U

Material Quantity Variance = (SQ for Actual Output – AQ)*SP

                For Material A = ((700*4) – 3050)*2 = 500 U

                For Material B = ((700*1) – 705)*3 = 15 U

Note - here Actual quantity used is taken and not purchased since we have taken produced output and to compare with it we have to take quantity used as this is actually used for production while rest is closing stock after consumption.

Now Labour Variances :

So the formula is :-

Direct Labour Direct Labour Direct Labour Efficiency Variance Rate Variance Idle Time Variance [Standard Cost of Actual Time Actual Cost] [Standard Rate per Hour x [Standard Actual Idle Hours] Cost of Standard Time for Actual Production Standard Cost of Actual Time] (The difference between Standard actual production and Actual Hours worked at Standard Rate) (The difference between the Actual the (The difference between Standard Rate per hour and Actual Hours paid and Actual Hours Rate per hour for the Actual Hours worked at Standard Rate) paid) [(SR -AR) x AH"] the Hours specified for [(АН - АН#) х SR] Or [(SH-AH#) x SRI Or Or Activate [(SH x SR) (AH# x SR)o to Setti [(SRx AH*) (AR x AH")] [(AH x SR) (AH#x SR)]

So

Labour Rate Variance = (SR-AR)*AH

= (8-8.3)*2050

= 615 U

Labour Efficiency Variance = (SH for Actual output - AH)*SR

= ((700*3)-2050)*8

= 400 F