Question

1. You have extracted the following standards for one of your company’s products:

Direct materials: 0.3 metres @ $15 = $4.50

Direct labour: 0.5 hour @ $20 = $10

The following actual results were recorded for the period:

Direct materials: 3500 metres purchased and used; total cost $53,900

Direct labour: 5000 hours; total labour cost $105,000

Production = 12,000 units

         Compute the materials price and usage variances, and the labour rate and      

         efficiency variances, for your company.                                                      

Answer 1

Ans. 1	Materials price variance = (Standard price * Actual quantity) - Actual materials purchased cost
		($15 * 3,500) - $53,900
		$52,500 - $53,900
		-$1,400	or   $1,400 unfavorable
	Materials quantity variance = (Standard quantity - actual quantity) * Standard price
		(3,600 - 3,500) * $15
		100 * $15
		$1,500	Favorable
	*Standard quantity = Actual output * Standard quantity per unit of output
		12,000 units * 0.3 metres
		3,600 metres
Ans. 2	Labor rate variance = (Standard rate * Actual hours) - Actual labor cost
		($20 * 5,000) - $105,000
		$100,000 - $105,000
		-$5,000	or   $5,000   unfavorable
	Labor efficiency variance = (Standard hours - Actual hours) * Standard rate
		(6,000 - 5,000) * $20
		1,000 * $20
		$20,000	Favorable
	Standard hours = Actual units produced and sold * standard hours per unit
		12,000 units * 0.50 hours
		6,000 hours