Question

"Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well," said Kim Clark, president of Martell Company. "Our $18,300 overall manufacturing cost variance is only 1.2% of the $1,525,000 standard cost of products made during the year. That's well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year." The company produces and sells a single product. The standard cost card for the product follows: Inputs Direct materials Direct labor Variable overhead Fixed overhead Total standard cost per unit (1) Standard Quantity or Hours 2 feet 1.4 hours 1.4 hours 1.4 hours (2) Standard Price or Rate $ 8.45 per foot $ 16 per hour $ 2.50 per hour $ 6 per hour Standard Cost (1) x (2) $ 16.90 22.40 3.50 8.40 $ 51.20 The following additional information is available for the year just completed: a. The company manufactured 30,000 units of product during the year. b. A total of 64,000 feet of material was purchased during the year at a cost of $8.55 per foot. All of this material was used to manufacture the 30,000 units produced. There were no beginning or ending inventories for the year. c. The company worked 43,500 direct labor-hours during the year at a direct labor cost of $15.80 per hour. d. Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:

Answer 1

(A)

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

= 64000 x ($8.45 - $8.55)

= $6400 Unfavorable

(B)

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

= $8.45 x (60000 - 64000)

= $33800 Unfavorable

Where,

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

=30000 x 2 = 60000 feet

(C)

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

= 43500 x ($16 - $15.80%)

= $8700 Favorable

(D)

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

= $16 x (38000 - 42000)

= $6400 Unfavorable

Where,

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

= 30000 x 1.4 = 42000 hours