Question

Assume Dunst Consulting has created a standard cost card for each job. Standard direct materials per job include 14 software packages at a cost of $ 900 per package. Standard direct labor costs per job include 100 hours at $ 100 per hour. Dunst plans on completing 7 jobs during March 2018. Actual direct materials costs for March included 90 software packages at a total cost of $ 81,450.

Actual direct labor costs included 110 hours per job at an average rate of $ 101 per hour. Dunst completed all 7 jobs in March.

Calculate direct materials cost and efficiency variances.

Calculate direct labor cost and efficiency variances

Prepare journal entries to record the use of both materials and labor for March for the company.

Answer 1

Direct Material cost variance = (SQ x SP) - (AQ x AP)
SQ = Standard Quantity for Actual Output = 7 Jobs x 14 Software packages = 98 Software Package
SP = Standard Price per software package = $900
AQ = 90 Software packages
AP = $81450 / 90 software packages = $905 per software package
Direct Material cost variance = (98 x $900) - (90 x $905) = $6750 F
Direct Material Efficiency variance = (AQ - SQ) x SP
Direct Material Efficiency variance = (90 - 98) x $900 = $7200 F
Direct Labor cost variance = (SH x SR) - (AH * AR)
SH = Standard Hours for Actual Output = 7 Jobs x 100 hours = 700 hours
SR = Standard Labour rate per hour = $100
AH = Actual labor hours = 110 hours * 7 jobs = 770 hours
AR = $101 per labour hour
Direct Labor cost variance = (700 x $100) - (770 * $101) = $7770 U
Direct Labour efficency variance = (AH x SR) - (SH x SR)
Direct Labour efficency variance = (770 x $100) - (700 x $100) = $7000 U