Question

Practice questions

(1)        The standard costs of wooden ducks on wheels, for the CURRENT year, for 5 mm board and for cutting are as follows:-

            5 mm board: 0.2 sq. metre at £4.50 per sq. metre.

            Cutters: 1.5 minutes at £7.20 per hour.

In the most recent period, 120 wooden ducks on wheels were produced.

25 sq. metres of 5 mm board were requisitioned from stores at a total cost of £110.

            2.75 hours were recorded for cutters at a total cost of £22.

            Required

(a)        Calculate the material price variance and material usage variance for 5 mm board

(ii)        Calculate the wage rate variance and labour efficiency variance for cutters

           

Suggest possible reasons for the variances calculated.

(2)        Given standard cost per unit:

            Direct materials (4 kg. @ 75p per kg)

            Direct labour (2 hrs @ £1.60 per hr)

            Actual details are:

		£
Output produced (units)	38,000
Direct material purchased	180,000 kg	126,000
issued to production	154,000 kg
Direct labour	78,000 hrs	136,500

            Calculate:         Material and labour variances.

Answer 1

(1)

a

AQ	=	Actual quantity
SQ	=	Standard quantity
AR	=	Actual rate
SR	=	Standard rate
Actual cost
AQ	x	AR		AQ	x	SR		SQ	x	SR
25	x	4.40		25	x	4.5		24	x	4.5
(1)	=	110.00		(2)	=	112.50		(3)	=	108.00
Direct material price variance				(2)	-	(1)	=	2.50		Favourable
Direct material quantity/efficiency variance				(3)	-	(2)	=	-4.50		Unfavourable
Total direct material variance				(3)	-	(1)	=	-2.00		Unfavourable

ii

AH	=	Actual hours
SH	=	Standard hours
AR	=	Actual rate
SR	=	Standard rate
Actual cost
AH	x	AR		AH	x	SR		SH	x	SR
2.75	x	8.00		2.75	x	7.20		3.00	x	7.20
(1)	=	22.00		(2)	=	19.80		(3)	=	21.60
Direct labor rate variance				(2)	-	(1)	=	(2.20)		Unfavourable
Direct labor efficiency variance				(3)	-	(2)	=	1.80		Favourable
Total direct labor variance				(3)	-	(1)	=	(0.40)		Unfavourable

(2)

Material variances:

AQ	=	Actual quantity
SQ	=	Standard quantity
AR	=	Actual rate
SR	=	Standard rate
Actual cost
AQ	x	AR		AQ	x	SR		SQ	x	SR
154,000	x	0.70		154,000	x	0.75		152,000	x	0.75
(1)	=	107,800.00		(2)	=	115,500.00		(3)	=	114,000.00
Direct material price variance				(2)	-	(1)	=	7,700.00		Favourable
Direct material quantity/efficiency variance				(3)	-	(2)	=	-1,500.00		Unfavourable
Total direct material variance				(3)	-	(1)	=	6,200.00		Favourable

Labor variances:

AH	=	Actual hours
SH	=	Standard hours
AR	=	Actual rate
SR	=	Standard rate
Actual cost
AH	x	AR		AH	x	SR		SH	x	SR
78,000.00	x	1.75		78,000.00	x	1.60		76,000.00	x	1.60
(1)	=	136,500.00		(2)	=	124,800.00		(3)	=	121,600.00
Direct labor rate variance				(2)	-	(1)	=	(11,700.00)		Unfavourable
Direct labor efficiency variance				(3)	-	(2)	=	(3,200.00)		Unfavourable
Total direct labor variance				(3)	-	(1)	=	(14,900.00)		Unfavourable