Question

Exercise 24-07 (Video)

Pharoah Inc., which produces a single product, has prepared the following standard cost sheet for one unit of the product.

Direct materials (6 pounds at $1.60 per pound)		$9.60
Direct labor (6 hours at $10.00 per hour)		$60.00

During the month of April, the company manufactures 310 units and incurs the following actual costs.

Direct materials purchased and used (2,400 pounds)		$4,080
Direct labor (1,880 hours)		$18,612

Compute the total, price, and quantity variances for materials and labor.

Total materials variance		$		Neither favorable nor unfavorableUnfavorableFavorable
Materials price variance		$		Neither favorable nor unfavorableFavorableUnfavorable
Materials quantity variance		$		UnfavorableNeither favorable nor unfavorableFavorable
Total labor variance		$		Neither favorable nor unfavorableUnfavorableFavorable
Labor price variance		$		Neither favorable nor unfavorableFavorableUnfavorable
Labor quantity variance		$		FavorableNeither favorable nor unfavorableUnfavorable

Answer 1

	Standard:
	Direct Material (Pounds per unit required for output)	6.00
	Direct Material (Cost per pound)	1.60
	Direct Labour (Hours per unit)	6.00
	Direct Labour (Cost per hour)	10.00
	Actual:
	Units Manufactured	310
	Total Direct Material Used (pounds)	2,400
	Cost of purchase of Direct Material (per pound)	1.70	$4080 / 2400 pounds
	Total Labour Hours Worked	1,880
	Cost of Labour per hour	9.90	$18612 / 1880 hours
	Calculation of variances:
	1. Material Price Variance = (Standard Price per unit - Actual Price per unit) * Actual Quantity Used
a	Standard Price per unit	1.60
b	Actual Price per unit	1.70
c	Actual Quantity Used	2,400
d	Material Price Variance	240	Unfavourable
	[(a) - (b)] * (c)
	2. Material Quantity Variance = (Standard Quantity - Actual Quantity) * Standard Price Per Unit
a	Standard quantity required	1,860
b	Actual quantity used	2,400
c	Standard Price per unit	1.60
d	Material Quantity Variance	864	Unfavourable
	[(a) - (b)] * (c)
	3. Total Material Variance = (Standard Quantity for actual output * Standard Rate per pound) - (Actual quantity * Actual Rate per pound)
a	Standard quantity for actual output	1,860
b	Standard rate per pound	1.60
c	Actual Quantity	2,400
d	Actual Rate per pound	1.70
e	Total Material Variance	1,104	Unfavourable
	[(a) * (b)] - [(c) * (d)]
	4. Labour Price Variance = (Standard Price per hour - Actual Price per hour) * Actual labour hours used
a	Standard Rate per hour	10.00
b	Actual Rate per hour	9.90
c	Actual Hours Worked	1,880
d	Labour Price Variance	188	Favourable
	[(a) - (b)] * (c)
	5. Labour Quantity Variance = (Standard hours for actual output - Actual hours worked) * Standard rate per hour
a	Standard hours for actual output	1,860
b	Actual Hours Worked	1,880
c	Standard Price per hour	10.00
d	Labour Quantity Variance	200	Unfavourable
	[(a) - (b)] * (c)
	6. Total Labour Variance = (Standard hours for actual output * Standard Rate per hour) - (Actual hours * Actual Rate per hour)
a	Standard hours for actual output	1,860
b	Standard Price per hour	10
c	Actual Hours Worked	1,880
d	Actual Rate per hour	9.90
e	Total Labour Variance	12	Unfavourable
	[(a) * (b)] - [(c) * (d)]