Question

Problem 1 – Standard Costing Sidney Bakers Patisserie makes banana cakes on a standard costing basis. Over the past years, the company has determined a standard materials quantity allowed of 0.75 pound per piece of banana cake at a standard price agreed with suppliers at $1.5 per pound. Historically, the company has been producing 11,000 banana cakes per month. During the just concluded month May 2020, company records show 10,500 banana cakes produced with an actual cost of $13,860 with 8,400 pounds purchased and used in production. Further information reveals that the company has standardized 0.25 hours to finish one unit at a standard rate of $7.00. Time tickets reveal that actual payroll for direct labor amounted to $14,175 with 2,100 hours worked. Required: For the final answers follow instructions. Denote variances with F or U after the answer (Ex. 100F for 100 Favorable; 100U for Unfavorable). Failure to comply with this format will not get any credit. Do not simply write positive or negative answer. 1. Total Materials Variance 2. Total Labor Variance 3. Materials Price Variance 4. Materials Quantity Variance 5. Labor Rate Variance 6. Labor Efficiency Variance 7. Compute the Materials Quantity Variance assuming only 7,500 units were produced with actual usage of 5,500 pounds, the remaining materials were left in ending inventory

Need to find

1. Total Materials Variance 2. Total Labor Variance 3. Materials Price Variance 4. Materials Quantity Variance 5. Labor Rate Variance 6. Labor Efficiency Variance 7. Compute the Materials Quantity Variance assuming only 7,500 units were produced with actual usage of 5,500 pounds, the remaining materials were left in ending inventory

Answer 1

Solution

1) Information required for calculating the material variance

• The actual production is 10,500 cakes.
• The actual direct material purchased and used is 8,400 pounds
• The actual price paid is $ 1.65 per pound is ($13,860 / 8,400 pounds)
• The material required to produce 1 cake is 0.75 pounds.
• The standard price is $1.5 per pound
• Total standard quantity required to is 7,875 pounds (10,500 cakes x 0.75 pound)

Total Materials Variance

= (Standard pounds for actual production x Standard price per pound) - (Actual pounds purchased x Actual price per pound

= (7,875 pounds x $ 1.5) - (8,400 pounds x $ 1.65)

= $ 11,812.5 - $ 13,860

= $ 2047.5 (U)

Material price variance = (standard price per pound- actual price per pound) * actual quantity purchased
= ($1.5 - $ 1.65) * 8,400

= ($0.15) * 8,400
= $ 1,260 (U)

Material quantity variance = Standard price per unit * (Standard quantity - Actual quantity)
=$ 1.5 x (7,875 – 8,400)
=$1.5 * 525
= $787.5 (U)

2) Given information required to calculate the labor variance

· The actual direct labor hours used is 2100 hours

· The actual price paid per direct labor hour is $6.75 ($14,175/ 2100)

· The standard direct labor cost per hour is $7 per hour

· .The standard labor hours to be used is 2,625 hours (10,500 x 0.25 hour required per cake)

Total Labor Variance

= (Standard labor hours x Standard rate per hour) - (Actual hours x Actual rate per hour

= (2,625 hours x $ 7) - (2,100 hours x $ 6.75)

= $ 18,375 - $ 14,175

= $ 4,200 (F)

Labor price variance = (standard price per labor hour - actual price per labor hour) * actual labor hours
= ($7 - $6.75) x 2,100 hours

= $0.25 * 2100
= $525 (F)

Labor Efficiency variance = standard price per labor hour * (standard labor hours – actual labor hours)
= (2,625 – 2,100) x $7
=$7 * 525
= $3,675 (F)

Computation of Materials Quantity Variance assuming only 7,500 units were produced with actual usage of 5,500 pounds, the remaining materials were left in ending inventory

Material quantity variance = Standard price per unit * (Standard quantity - Actual quantity)
=$ 1.5 x (5,625– 5,500)
=$1.5 * 125
= $187.5 (F)

W.N. 1

Standard quantity to be used when 7,500 units produced

= 7,500 units x 0.75 pounds

= 5,625 pounds