Question

Alpha Pty Ltd is a privately held furniture manufacturing company. For September 2018, Alpha had the following standards for one of its products, a wicker chair: Standards per Chair Direct materials 2 square yards of input at $5 per square yard Direct manufacturing labor 0.5 hour of input at $10 per hour The following data were compiled regarding actual performance: actual output units (chairs) produced, 2000; square yards of input purchased and used, 3,700; price per square yard $5.10; direct manufacturing labor costs, $8,820; actual hours of input, 900; labor price per hour, $9.80.

a) Show computations of price and efficiency variances for direct materials. Price variance Efficiency variance Flexible budget variance

b) Give plausible explanations of why each variance occurred

Answer 1

Alpha Pty Ltd

1. Direct material price variance = Actual qty. consumed * ( std.price - Actual price)

  = 3700 * ( $5 - $5.10)

Direct material price variance = $370 (adverse)

2. efficiency variances for direct material = std.price * ( std.qty - Actual qty)

std.qty = std.qty.of raw material required for actual output * std.price

= $2000 * 2

= $4000

= $5 * ($4000 - 3700) = $1500 (favourable)

efficiency variances for direct material = $1500 (favourable)

3.eficiency variance = SRR/hour * (std hours - Actual hours)

= $9.8 * ( 2000*0.5 - 900)

= $980 (favourable)

B)

1) in price variance, if actual price is more than standard them the variance is adverse and if lower then variance is favourable.in the given case actual price is more than standard then variance is adverse.

2) in efficiency variance, if actual qty is more than standard,then the variance is adverse and if lower then it is favourable.in the given case actual qty is lower than std qty then the variance is favourable.

3) in efficiency variance, if actual hours are more than standars then the variance is adverse and if lower then it is favourable. in the given case std hours are ,ore than actual then the variance is favourable.