Question

	Standard Quantity or Hours			Standard Price or Rate			Standard Cost Per Unit
Direct materials		7.0	ounces	$	4.00	per ounce	$	28.00
Direct labor		0.7	hours	$	14.00	per hour	$	9.80
Variable overhead		0.7	hours	$	9.00	per hour	$	6.30

The company reported the following results concerning this product in May.

Actual output		2,900	units
Raw materials used in production		21,000	ounces
Purchases of raw materials		21,900	ounces
Actual direct labor-hours		2,000	hours
Actual cost of raw materials purchases	$	89,790
Actual direct labor cost	$	32,400
Actual variable overhead cost	$	3,200

Calculate the following variances:

Materials price variance

Materials quantity variance

Labor rate variance

Labor efficiency variance

Answer 1

Calculation of Material Price Variance as follows:

Material Price Variance = ( SP -AP ) * AQ

= ( $ 4 - $ 4.1 ) * 21,000

= $ 2,100 Unfavorable

Thus, Material Price Variance is $ 2,100 Unfavorable

AP = Actual cost of raw materials purchases / Purchases of raw materials

= $ 89,790 / 21,900 ounces

= $ 4.1

Calculation of Material Quanity Variance as follows:

Material Quantity Variance = ( SQ - AQ ) * SP

= ( 20,300 - 21,000 ) * $ 4

= $ 2,800 Unfavorable

Thus, Material Quantity Variance is $ 2,800 Unfavorable

SQ = Actual Production * Standard material required per unit

= 2900 units * 7 ounces

= 20,300 ounces

Calculation of Labor rate variance is as follows:

Labor rate variance = ( SR -AR ) * AH

= ( $ 14 - $ 16.2 ) * 2,000

= $ 4,400 Unfavorable

Thus, Labor rate variance is $ 4,400 Unfavorable

AR = Actual labor cost / AH

= $ 32,400 / 2000

= $ 16.2

Calculation of Labor efficiency variance is as follows:

Labor efficiency variance = ( SH - AH ) * SR

= ( 2030 - 2000 ) * $ 14

= $ 420 Favorable

Thus, Labor efficiency variance is $ 420 Favorable

SH = Actual Production * Standard labour hours required per unit

= 2,900 units * 0.7 hours

= 2030 hours

Where,

AH	=	Actual labor hours
SH	=	Standard hours for Actual production
AR	=	Actual Rate per hour
SR	=	Standard Rate per hour
SQ	=	Standard Quantity of raw material for Actual production
AQ	=	Actual Quantity of raw material used in production
SP	=	Standard Price per unit of raw material
AP	=	Actual Price per unit of raw material