Question

Variances

In early 2014, JAX Inc. had budgeted for the production and sales of 6,000 units at a sales price of

$20 per unit. The following information is available regarding the standards for each unit:

Direct Materials:   2 pounds @ $3.00 per pound

Direct Labor:   30 minutes of assembly @ $0.25 per minute

Actual results for 2014 were determined to be: Number of units produced and sold:   6,800

Sales Revenue:   $149,600 ($22 / unit)

Direct Materials   $43,384 (14,960 lbs purchased and used at $2.90 / lb.)

Direct Labor:   $59,024 (210,800 minutes at $0.28 / minute)

What was JAX Inc.’s direct materials price variance for 2014?

What was JAX Inc.’s direct materials usage (efficiency) variance for 2014?

What was JAX Inc.’s direct labor rate (price) variance for 2014?

What was JAX Inc.’s direct labor efficiency variance for 2014?

****Please explain how you got the numbers and why it is unfavorable and favorable.

Answer 1

• All working forms part of the answer
• Requirement 1 Direct Material Price Variance

Material Price Variance
(	Standard Rate [given]	-	Actual Rate [given]	)	x	Actual Quantity used [given]
(	$                        3.00 per pound	-	$                       2.90 per pound	)	x	14,960 lbs
	1496
	Variance		$              1,496.00			Favourable-F

The variance is Favourable because Actual Price is LESS than Standard price.

• Requirement 2 Direct material Usage variance

Material Usage Variance
(	Standard Quantity = 6800 units x 2 pounds	-	Actual Quantity used [given]	)	x	Standard Rate per pound [given]
(	13600 pounds	-	14960 pounds	)	x	$                           3.00 per pound
	-4080
	Variance		$              4,080.00			Unfavourable-U

Unfavourable because Actual quantity used is MORE than Standard quantity.

• Requirement 3 Direct Labor rate Variance

Labor Rate Variance
(	Standard Rate [given]	-	Actual Rate [given]	)	x	Actual Labor minutes
(	$                        0.25 per minute	-	$                       0.28 per minute	)	x	210800 minutes
	-6324
	Variance		$              6,324.00			Unfavourable-U

Unfavourable because Actual rate is MORE than Standard rate per minute.

• Requirement 4 Direct Labor Efficiency Variance

Labour Efficiency Variance
(	Standard minutes = 6800 units x 30 minutes	-	Actual minutes [given]	)	x	Standard Rate per minute [given]
(	204000	-	210800	)	x	$                           0.25
	-1700
	Variance		$              1,700.00			Unfavourable-U

Unfavourable because Actual minutes consumed are MORE than Standard minutes allowed.