Question

Give citations for the following that can be used:

Direct materials price variance (based on materials used)

Direct materials usage variance

Direct labor variance

Direct labor efficiency variance

Answer 1

1) Direct materials price variance (based on materials used).

Direct materials price variance arises due to actual price being different from the budgeted price for direct materials.

It is calculated as:

Actual quantity purchased*(Actual price-Standard price).

If the actual price is more than the standard price, the variance is unfavorable and vice versa.

2) Direct materials usage variance.

The variance arises due to the actual quantity used being different than the standard quantity allowed for actual production.

It is calculated as:

Standard price*(Actual usage-Standard usage)

A positive figure indicates an unfavorable variance and a negative figure indicates favorable variance.

3) Direct labor rate variance.

Direct labor rate variance arises when the actual labor rate differs from the standard labor rate.

It is calculated as:

Acual direct labor hours*(Actual rate-Standard rate)

A positive figure indicates an unfavorable variance and a negative figure indicates favorable variance.

4) Direct labor efficiency variance.

This variance indicates the efficiency of the direct labor. It is calculated as:

Standard direct labor rate*(Actual direct labor hours-Standard direct labor hours for actual production).

A positive figure indicates an unfavorable variance and and a negative variance indicagtes favorable variance.