Question

Inaya Valley Orchards, Inc. (IVO), developed standard costs for direct material and direct labor. In 2011, IVO estimated the following standard costs for one of their most well loved products, the IVO classic Grandma's large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples.    Budgeted quantity   Budgeted price    Direct materials   1.50 kilograms   $7.25 per kilogram    Direct labor   0.25 hours   $14.00 per hour During September, IVO produced and sold 1,200 pies using 1,875 pounds of direct materials at an average cost per pound of $7.00 and 280 direct labor hours at an average wage of $14.25 per hour. Required: (A) September's direct manufacturing labor price variance is: (1 mark) (B) September's direct manufacturing labor efficiency variance is: (C) September's direct material price variance is: (1 mark) (D) September's direct material quantity variance is:

Answer 1

Answer:

Direct Material;

Standard quantity required to produce 1,200 pies = 1,200 x 1.50 kgs. = 1,800 pounds

Actual quantity used to produce 1,200 pies = 1,875 pounds

Standard price of direct material = $7.25 per pound

Actual price of direct material = $7.00 per pound

Direct manufacturing labor:

Standard labor hours required to produce 1,200 pies = 1,200 x 0.25 hrs. = 300 hours

Actual labor hours used to produce 1,200 pies = 280 hours

Standard rate of direct labor = $14.00 per hours

Actual rate of direct labor = $14.25 per hours

Calculation of direct labor & direct material variances:

(A) Direct manufacturing labor price variance = (Standard rate - Actual rate) x Actual hours

= ($14.00 - $14.25) x 280 hours

= $70 Unfavorable

(B) Direct manufacturing efficiency variance = (Standard hours - Actual hours) x Standard rate

  = (300 hours - 280 hours ) x $14.00

  = $280 Favorable

(C) Direct material price variance = (Standard price - Actual price) x Actual quantity

= ($7.25 - $7.00) x 1,875 pounds

= $468.75 Favorable

(D) Direct material quantity variance = (Standard quantity - Actual quantity) x Standard rate

= (1,800 pounds - 1,875 pounds) x $7.25

= $543.75 Unfavorable