In: Accounting
Martinez Fabrics manufactures shirts each of which requires the following:
Direct materials standard 2.5 yards at $8 per yard
Direct manufacturing labor standard 6 hours at $12
Actual results in the third quarter included production of 2,000 shirts which cost $35,000 and used 4,500 yards of fabric. There were 7,000 actual direct labor hours, with an actual cost of $70,000.
Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.
a.
Standard price = $8 per yard
Standard quantity = $2.5 yards per unit
Actual output = 2,000 units
Actual cost of materials = $35,000
Actual quantity = 4,500 yards
Standard quantity for actual output = Standard quantity x Actual output
= 2.5 x 2,000
= 5,000 yards
Actual price= Actual cost of materials / Actual quantity
= 35,000/4500
= $7.78 per yard
Direct materials price variance = Actual quantity x (Standard price- Actual price)
= 4,500 x (8-7.78)
= 4,500 x (0.22)
= $990 favorable
Direct material efficiency variance = Standard price x (Standard quantity - Actual quantity)
= 8 x (5,000-4,500)
= 8 x 500
= $4,000 favorable
b.
Standard rate = $12 per hour
Standard time = 6 hours per unit
Actual output = 2,000 units
Actual time = 7,000 direct labor hours
Actual cost of labor = $70,000
Standard time for actual output = Standard time x Actual output
= 6 x 2,000
= 12,000 hours
Actual rate = Actual cost of labor/Actual time
= 70,000/7,000
= $10 per hour
Direct labor price variance = Actual time x (Standard rate - Actual rate)
= 7,000 x (12-10)
= 7,000 x 2
= $14,000 favorable
Direct labor efficiency variance = Standard rate x (Standard time- Actual time)
= 12 x (12,000-7,000)
= 12 x 5,000
= $60,000 favorable