Question

Martin, Inc. is a manufacturer of lead crystal glasses.

The standard direct materials quantity is 1.0 pound per glass at a cost of $0.50 per pound. The actual result for one month’s production of 6,500 glasses was 1.2 pounds per glass, at a cost of $0.30 per pound.

The standard direct labor time is 0.5 hours per glass, at a cost of $18 per hour. The actual results for one month’s production of 6,500 glasses were 0.2 hours per glass, at a cost of $11 per hour.
1- Calculate the direct materials cost variance and the direct materials efficiency variance.

2- Calculate the direct labor cost variance and the direct labor efficiency variance.

3- For each variance, who in Martin’s organization is most likely responsible?

4- Interpret the direct materials and direct labor variances for Martin’s management.

Answer 1

Answer :-

1)

Material Variances
Actual Production	6,500	Glasses
Standard Material Qty / Glass	1.00	Pound
Total Standard Material	6,500.00	Pound
Rate/ Pound	0.50
Actual Material Qty / Glass	1.20	Pound
Total Actual Material	7,800.00	Pound
Rate/ Pound	0.30
Material Cost Variance	910.00	Favorable
(SQ * SR) - (AQ * AR)
(6500*.50) - (7800*.30)
Material Efficiency Variance	(650.00)	Adverse
(RAQ * SR) - (AQ * SR)
(6500*.50) - (7800*..50)

2)

Labour Variances
Actual Production	6,500	Glasses
Standard Labour Hours / Glass	0.50	Hours
Total Standard Hours	3,250.00	Hours
Rate/ Hour	18.00
Actual Labour Hours / Glass	0.20	Pound
Total Actual Hours	1,300.00	Hours
Rate/ Hour	11.00
Labour Cost Variance	44,200.00	Favorable
(SH * SR) - (AH * AR)
(3250*18) - (1300*11)
Labour Efficiency Variance	35,100.00	Favorable
(RAH * SR) - (AH * SR)
(3250*18) - (1300*18)

3)

Material Cost Variance	910.00	Favorable
This is because of Actual rate is less than standard even if the Actual Material Used is more than Standard, there is favorable Variance. Its only bcz of Negotiation power of purchase deppt.
Material Efficiency Variance	(650.00)	Adverse
This is due to efficiency of workers in production units. They use more than standard material for making a glass
Labour Cost Variance	44,200.00	Favorable
This is because of high efficiency of labours making the glasses.
Labour Efficiency Variance	35,100.00	Favorable

This is because of high efficiency of labours making the

glasses.

4) Both the Variances are favorable for the company. Company is in good position in all regards. Actual Material used in production is more than standard but still ddue to negotiation power Actual rate could be reduced and hence overall it is beneficial for the company.