Question

The Starr Company has established a standard cost system for the manufacture of a single consumer product, which is branded under the name Vinbit. The standard costs of producing one Vinbit are shown below:

Standard Cost Card:

Direct Materials: 20 pounds @ $.30                                         $6.00

Direct Labor: 3 hours @ $15.00                                             $45.00

At the beginning of the year, Starr Company established a monthly flexible overhead budget as follows:

Flexible Overhead Budget:

Variable Charges - $.60 per direct labor hour

Fixed Charges - $5,000.00 per month

Budgeted Volume – 10,000 direct labor hours      

The costs of operations to produce 4,500 Vinbits during May are stated below (there were no initial inventories):

            Actual Costs:

            Materials purchased: 110,000 pounds @ $.31                    $34,100

            Materials used: 105,000 pounds

            Direct Labor: 13,750 hours @ $15.20                                 $209,000

            Variable overhead incurred                                                     $8,500

            Fixed overhead incurred                                                          $6,000

                       

Required:

1. Prepare a calculation of the direct material price and quantity variances for the month of May. Variances are calculated as soon as possible.

2. Prepare a calculation of the direct labor wage rate and efficiency variances for the month of May.

Answer 1

Prepare a calculation of the direct material price and quantity variances for the month of May.

Direct Material Price Variance = (Actual Price – Standard Price) * Actual Quantity purchased

($0.31 - $0.30) * 110000 pounds = $1100 Unfavorable

Direct Material Quantity Variance = (Actual Quantity used – Standard Quantity) * Standard Price

Standard Quantity = Actual output * Standard Quantity per output

              = 4500 vinbits * 20 pound = 90000 pounds

(105000 pounds – 90000 pounds) * $0.30 = $4500 Unfavorable

Prepare a calculation of the direct labor wage rate and efficiency variances for the month of May.

Direct Labor Wage Rate variance = (Actual Rate – Standard Rate) * Actual Hours

($15.20 - $15) * 13750 hours = $2750 Unfavorable

Direct Labor Efficiency variance = (Actual Hours – Standard Hours) * Standard Rate

Standard Hours = Actual output * Standard hours per output

   = 4500 vinbits * 3 hours = 13500 hours

(13750 hours – 13500 hours) * $15 = $3750 Unfavorable