Question

Materials and Labor Variances

At the beginning of the year, Craig Company had the following standard cost sheet for one of its plastic products:

Direct materials (5 lbs. @ $4.00)	$20.00
Direct labor (2 hrs. @ $15.00)	30.00
Standard prime cost per unit	$50.00

The actual results for the year are as follows:

1. Units produced: 490,000.
2. Materials purchased: 3,430,000 pounds @ $5.55.
3. Materials used: 2,891,000 pounds.
4. Direct labor: 1,078,000 hours @ $11.04.

Required:

1. Compute price and usage variances for materials. Enter amounts as positive numbers and select Favorable or Unfavorable.

Material price variance	$
Material usage variance	$

2. Compute the labor rate and labor efficiency variances. Enter amounts as positive numbers and select Favorable or Unfavorable.

Labor rate variance	$
Labor efficiency variance	$

Answer 1

Answer-1)- Direct material price variance = $5316500 U.

Explanation- Direct Material price variance = (Standard price – Actual price) * Actual quantity purchase

= ($4.00 per lb. – $5.55 per lb.)* 3430000 pounds

= $5316500 Unfavorable

Direct Material usage variance = $1764000 U.

Explanation- Direct Material usage variance = (Standard Quantity- Actual Quantity)*Standard price

= (2450000 pounds – 2891000 pounds)*$4.00 per pound

= $1764000 Unfavorable

Where- Standard Quantity = No. of pounds per unit*Actual output

= 5 lbs. per unit *490000 units

= 2450000 pounds

2)- Direct labor price variance = $4268880 F.

Explanation- Direct Labor Price (Rate) variance = (Standard rate – Actual rate) * Actual hours

= ($15.00 per hour - $11.04 per hour)*1078000 hours   

= $4268880 Favorable

           

Direct Labor Efficiency variance= $1470000 U.

Explanation- Direct Labor Efficiency variance=(Standard hours-Actual hours)*Standard rate per hour

= (980000 hours – 1078000 hours)*$15.00 per hour

= $1470000 Unfavorable

Where- Standard Hours = No. of hours per unit*Actual output

= 2 hours per unit *490000 units

= 980000 hours