Question

Warrier Gear manufactures clothing. A flannel shirt requires the following:

Standard Direct Materials 2 square yards at $15 per yard

Standard Manufacturing Labor 1.5 hours at $25 per hour

During the third quarter, the company made 1,500 shirts and used 3,200 square yards of fabric costing $44,800. Direct labor totaled 2,100 hours for $56,700.

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. (c) Describe 2 possible reasons for each variance. Show all computations.

Answer 1

Std Material Qty allowed (1500*2): 3000 sq. yards
Std price: 15 per yeard
Actual Material Qty: 3200 sq. yards
Actual Price: (44800/3200) = 14
Material Price variance: Actual Quantity (Std price-Actual price)
		3200 ( 15-14) = 3200 Fav
Reasons:
* The Purchase department has purchased more efficiently through good delas from supplier.
*Lower quality might have been purchased.
Material Quantity Variance: Std price (Std Qty-Actual Qty)
		15 (3000 -3200) = 3000 Unfav
Reason:
*Production inefficiencies and wastage
*Lower quality of material purchased.
Std labour hours alloweed (1500*1.50): 2250 hours
Std rate per hour: 25 per hour
Actual labour hours: 2100 hours
Actual Rate per hour: (56700/2100): 27 per hour
Labour rate variance: Actual Hours (Std rate-Actual Rrate)
		2100 (25-27) = 4200 Unfav
Reasons:
*Shortage of labour in the market
*Labour unions stronger
Labour efficiency variance: Std rate (Std hours-Actual hours)
		25 (2250- 2100) = 3750 Fav
Reasons:
* Skiled or experienced workers employed at higher rate.
* Favorable production environment.