Question

In: Accounting

Superlight Limited has the following standard information for its single product: Quantity Standard Price Standard Material...

Superlight Limited has the following standard information for its single product:

Quantity Standard

Price Standard

Material

7 kilogram per unit

$1.50 per kilogram

Labour

2.5 hours per unit

$20 per hour

In March, the company produced 6,000 units. Actual data associated with March’s operations are as follows:

Materials purchased

19,000 kilograms at a cost of $26,100

Material used in production

51,000 kilograms

Labour used in production

14,500 hours at $23 per hour

Required:

  1. Calculate the material price variance and material efficiency variance.

  1. Calculate the labour price variance and labour efficiency variance.

  1. Give one possible explanation for each of the 4 variances you calculated in parts 1) and 2) above. Hint: is the variance (un)favourable? Is there possibly a relationship between any of these variances? (5 mark)

Solutions

Expert Solution

Material Price Variance = Standard cost of actual purchase - Material purchase cost

= (19,000 kg @ 1.50 per kg) - $26,100

= $28,500 - $26,100

= $2,400 (favorable)

Note: Price variance is calculated on purchase quantity.

Material Efficiency Variance = Standard price x (Standard quantity - Actual Quantity)

= $ 1.50 [(6,000 x 7) - (51,000)]

= $ 1.50 [(6,000 x 7) - (51,000)]

= $ 1.50 x (42000 - 51000)

= - $13,500

= $13,500 (Unfavorable)

Labour Price Variance = Actual labour hours x (Standard Labour price - Actual labour price)

= 14,500 hours x ($20 - $23)

= - $ 43,500

= $ 43,500 (Unfavorable)

Labour Efficiency Variance = Standard price x (Standard quantity - Actual Quantity)

= $20 x [(6,000 units x 2.5 hours) -14,500 hours ]

= $20 x (15,000 hours - 14,500 hours)

= $ 10,000 (favorable)

Possible explanation:

Material Price Variance = It is favorable as purchase cost per unit is lower than the standard cost

Material efficiency variance = It is Unfavorable as material used 51,000 kg compare to standard quantity of 42,000 kg

Labour Price variance = It is unfavorable as labour cost incurred $23 per hour against $20 which is standard

Labour Efficiency variance = It is favorable as 14,500 labour hours used in production compare to standard 15,000 hours.

Is there possibly a relationship between any of these variances?

There is no relationship between any of above variance. Any of above variance may be favorable or unfavorable.  

ekkarill92 answered 2 years ago
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