Question

1. Al Fara Corporation makes a product with the following standard costs:

Direct material: 10 ounces at $1.50 per ounce	$ 15.00
Direct labor: 0.6 hours at $30.00 per hour	18.00
Variable manufacturing overhead: 0.6 hours at $10.00 per hour	6.00
Total standard variable cost per unit	$27.00
Budgeted units to be produced	2,000

During October, 1,900 unitswere produced. The company reported the following results concerning this product at the end of  October:

Material purchased: 18,000 ounces at $2.00 per ounce	$36,000
Direct labor: 1,100 hours at $30.50 per hour	$33,550
Variable manufacturing overhead costs incurred	$12,980

1. Compute the Direct materials price variance (Spending) and quantity variance for the month of October. State if these variances are favorable or unfavorable. (2pts)
2. Compute the Direct Labor rate variance (Spending) and labor efficiency variance (quantity) for the month of October. State if these variances are favorable or unfavorable. (1pt)

Answer 1

				Data for Resource Variance
				Budgeted (1 unit)	Standard(1900 Units)	Actual(1900 Units)
				Quantity/Hrs	Rate	Amount	Quantity/Hrs	Rate	Amount	Quantity/Hrs	Rate	Amount
			Material	10	1.5	15	19000	1.5	28500	18000	2	36000
			Labour	0.6	30	18	1140	30	34200	1100	30.5	33550
			V. Overhead	0.6	10	6	1140	10	11400	1100	11.8	12980
				Total		39			74100			82530
	1. Computation of Variances
	a)		Material Price Variance = (Standard Price - Actual Price ) Actual Quantity Purchased
			= (1.5- 2 )*18000
			-9000	unfavorable
			Material Quantity Variance = (Standard quantity - Actual Quantity ) Standard Price
			= (19000-18000 )*1.5
			1500	favorable
	b)		Labour Rate Variance = (Standard Rate - Actual Rate) Actual Hrs Worked
			= (30-30.5)*1100
			-550	unfavorable
			Labour Efficiency Variance = (Standard Hrs. - Actual Hrs) Standard Rate
			= (1140-1100 ) *30
			1200	favorable