Question

Direct Materials and Direct Labor Variances At the beginning of June, Kimber Toy Company budgeted 12,000 toy action figures to be manufactured in June at standard direct materials and direct labor costs as follows: Direct materials Direct labor $18,000 11,760 $29,760 Total The standard materials price is $0.60 per pound. The standard direct labor rate is $14.00 per hour. At the end of June, the actual direct materials and direct labor costs were as follows: Actual direct materials $16,400 Actual direct labor 10,700 Total $27,100 There were no direct materials price or direct labor rate variances for June. In addition, assume no changes in the direct materials inventory balances in June. Kimber Toy Company actually produced 10,600 units during June. Determine the direct materials quantity and direct labor time variances. Round your per unit computations to two decimal places, if required. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Direct materials quantity variance Direct labor time variance

Answer 1

	Direct materials and direct labor variances:
	Direct material quantity variance=Standard rate of material*(Actual quantity consumed-Standard quantity)
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Standard rate of material=$ 0.60 per pound
	Standard quantity=Actual units produced*standard quantity required per pound
	Standard quantity required per pound=Budgeted materials in pounds/Budgeted units to be produced
	Budgeted materials in pounds=Budgeted direct materials/Standard rate of material=18000/0.60=30000 pounds
	Standard quantity required per pound=30000/12000=2.5 pounds per unit
	Standard quantity=10600*2.5=26500 pound
	Actual quantity consumed=Actual direct material cost/Actual rate of material
	There were no direct material price variance for June.
	Hence, Standard rate of material=Actual rate of material=$0.60 per pound
	Actual quantity consumed=16400/0.60=27333 pound
	Direct material quantity variance=0.60*(27333-26500)=4999.8=500=$ 500 Unfavorable
	Direct labor time variance=Standard rate of labor*(Actual hours worked-Standard hours)
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Standard rate of labor=$14 per hour
	Standard hours=Actual units produced*Standard hour per unit
	Standard hours per unit=standard hours required/Budgeted units to be produced
	Standard hours required=Budgeted direct labor cost/Standard rate of labor=11760/14=840 hours
	Standard hours per unit=840/12000=0.07 hours
	Standard hours=10600*0.07=742 hours
	Actual hours worked=Actual direct labor cost/Actual rate of labor
	There were no direct labor rate variance for June.
	Hence, Standard rate of labor=Actual rate of labor=$14 per hour
	Actual hours worked=10700/14=764 hours
	Direct labor time variance=14*(764-840)=-1064=$ 1064 Favorable
	Flexible overhead budget:
	Variable overhead cost per unit=budgeted cost/Budgeted hours of production
				Budgeted cost	Budgeted hours of production	Variable overhead cost per unit
				a	b	a/b
	Indirect labor			131600	14000	9.4
	Power and light			5740	14000	0.41
	Indirect materials			36400	14000	2.6
	Fixed overhead cost will remain same at all levels of production
			Factory overhead cost budget-Press department
	Direct labor hours				12000	14000	16000
					$	$	$
	Variable overhead cost:
	Indirect labor				112800	131600	150400
					(12000*9.4)	(14000*9.4)	(16000*9.4)
	Power and light				4920	5740	6560
					(12000*0.41)	(14000*0.41)	(16000*0.41)
	Indirect materials				31200	36400	41600
					(12000*2.6)	(14000*2.6)	(16000*2.6)
	Total variable factory overhead			a	148920	173740	198560
	Fixed factory overhead cost:
	Supervisory salaries				60810	60810	60810
	Depreciation of plant and equipment				38220	38220	38220
	Insurance and property taxes				24320	24320	24320
	Total fixed factory overhead			b	123350	123350	123350
	Total factory overhead cost			a+b	272270	297090	321910
	Factory overhead cost variances:
	Variable factory overhead controllable variance=Actual variable factory overhead cost incurred-Budgeted variable factory overhead for 4000 hours
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Budgeted variable factory overhead for 5000 hours=(Budgeted hours)*(standard factory overhead rate per hour-Standard fixed factory overhead rate per hour)=5000*(26-5.25)=$ 103750
	Variable factory overhead controllable variance=100600-103750=-3150=$ 3150 favorable
	Fixed factory overhead volume variance=Productive capacity not used*Standard fixed factory overhead rate
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Productive capacity not used=Productive capacity at 100%-Budgeted level of production=8000-5000=3000 hours
	Fixed factory overhead volume variance=3000*5.25=15750=$ 15750 Unfavorable
	Total factory overhead cost variance=Variable factory overhead controllable variance+Fixed factory overhead volume variance
	Total factory overhead cost variance=-3150+15750=12600=$ 12600 Unfavorable
	Direct materials,Direct labor and factory overhead cost variance analysis:
a	Direct materials price variance=Actual quantity of material used*(Actual rate of material-Standard rate of material)
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Actual material used=7200 lbs.
	Standard rate of material=$ 4.70 per pound
	Actual rate of material=$ 4.50 per pound
	Direct materials price variance=7200*(4.50-4.70)=-1440=$ 1440 (Favorable)
	Direct Materials quantity variance=Standard rate of material*(Actual quantity consumed-Standard quantity)
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Standard rate of material=$ 4.70 per pound
	Standard quantity=7300 lbs.
	Actual material used=7200 lbs.
	Material quantity variance=4.70*(7200-7300)=-470=$ 470 (Favorable)
	Total direct materials cost variance=Direct materials price variance+Direct materials quantity variance
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Total material cost variance=-1440+-470=1910=$ 1910 (Favorable)