Question

Gardener's Market manufactures

hedgers. During the year, it manufactured 5,000 hedgers, using 4.2 hours of direct labor per hedger at a rate of $8. The materials and labor standards for manufacturing the hedgers are:

Direct materials (10 units @ $2) $20

Direct labor (4 hours @ $7.50 per hour) 30

Gardener's Market actually purchased and used 53,000 units of direct materials at a price of

$2.25 per unit.

1. Determine the materials price variance and whether it is favorable or unfavorable.

2.Determine the materials usage variance and whether it is favorable or

unfavorable.

3.Determine the labor rate variance and whether it is

favorable or unfavorable.

4.Determine the labor efficiency variance and whether it is favorable or

unfavorable.

Answer 1

Ans:

1. Calculation of the materials price variance:

Material price Variance = ( Actual Price - Standard Price) X Actual Quantity

MPV = ( AP - SP ) X AQ

= ( $2.25 - $2.00 ) X 53,000 units

= $13,250 U

.

2. Calculation of the materials usage variance:

Material Usage Variance = ( Actual Quantity - Standard Quantity) X Standard Price

MUV = ( AQ - SQ ) X SP

= ( 53,000 - 50,000 ) X $2

= $6,000 U

.

3. Calculation of the labor rate Variance:

Labor Rate Variance = ( Actual Rate - Standard Rate) X Actual Hour

LRV = ( AR - SR ) X AH

= ( $8.00 - $7.50 ) X 21,000

= $10,500 U

.

4. Calculation of the labor efficiency variance:

Labor Efficiency Variance = ( Actual Hours - Standard Hours) X Standard Rate

LEV = ( AH - SH ) X SR

= ( 21,000 - 20,000 ) X $7.50

= $ 7,500 U

.

Notes:

(a) SQ = 5,000 Hedger X 10 units = 50,000 units

(b) AH = 5,000 Hedger X 4.2 hours = 21,000 hours

(c) SH = 5,000 Hedger X 4 hours = 20,000 hours

(d) U = Unfavorable and F = Favorable.