Question

Pato Company produces leather sandals. The company employs a standard costing
system and has the following standards in order to produce one pair of sandals:

                    standard quantity              standard price
direct materials     2 leather strips              ?? per strip
direct labor         2.5 hours                     $12 per hour
variable overhead    2.5 hours                     ?? per hour

During May, Pato purchased leather strips at a total cost of $124,250 and had
direct labor totaling $171,100. During May, Pato used 13,600 leather strips in
the production of sandals. Pato had no beginning inventories of any type for
May. At May 31, Pato had 600 leather strips remaining in its direct materials
inventory.

Pato Company reported the following variances for May:

  Direct material price variance ..............  $7,100 favorable
  Direct labor rate variance ..................  $29,500 unfavorable
  Total direct labor variance .................  $8,900 favorable
  Variable overhead spending variance .........  $2,440 favorable
  Variable overhead efficiency variance .......  $34,560 favorable

Calculate Pato's direct material quantity variance for May. If the variance is
favorable, place a minus sign in front of your answer (i.e., -5000). If the
variance is unfavorable, simply enter your answer as a number (i.e., 5000).

Answer 1

Solution:

Total direct labor variance = $8,900 F

Actual direct labor cost = $171,100

Total direct labor cost variance = Standard cost of direct labor - actual cost of direct labor

$8,900 = Standard cost of direct labor - $171,100

Standard cost of direct labor = $180,000

standard rate of direct labor = $12 per hours

Standard hours for actual production = $180,000 / $12 = 15000 hours

Standard hours per unit = 2.50 hours

Actual production units = 15000 / 2.50 = 6000 units

Direct material price variance = $7,100 F

Total purchase quantity of leather strips = leather strips used in may + ending inventory in may

= 13600 + 600 = 14200 leather strips

Actual cost of direct material = $124,250

Actual price of direct material = $124,250 / 14200 = $8.75 per unit

Direct material price variance = (SP - AP) * AQ Purchased

= (SP - $8.75) * 14200 = $7,100

SP = $9.25 per leather strip

Standard quantity for actual production = 6000 * 2 =12000 leather strips

Actual quantity used = 13600 leather strips

Direct material quantity variance = (SQ - AQ) * SP = (12000 - 13600) * $9.25 = $14,800