Question

Saskatewan Can Company manufactures recyclable soft-drink cans. A unit of production is a case of 12 dozen cans. The following standards have been set by the production-engineering staff and the controller.

  

Direct Labor:	Direct Material:
Quantity, 0.13 hour	Quantity, 6 kilograms
Rate, $6.50 per hour	Price, $0.36 per kilogram

  

Actual material purchases amounted to 112,000 kilograms at $0.400 per kilogram. Actual costs incurred in the production of 16,000 units were as follows:

Direct labor:	$16,200 for 2,400 hours
Direct material:	$40,000 for 100,000 kilograms

Required:

Use the variance formulas to compute the direct-material price and quantity variances, the direct-material purchase price variance, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

	Direct-material price variance Direct-material quantity variance Direct-material purchase price variance Direct-labor rate variance Direct-labor efficiency variance

Answer 1

Direct-material price variance=Budgeted direct material price-Actual direct material price

=112000(0.36-.040)

=112000*-0.04

=-$4480

It is unfavourable for the company

Direct-material quantity variance=(Budgeted direct material quantity-Actual direct material quantity)*Standard price

Budgeted quantity=6kg i.e.16000*6=96000kgs

Actual quantity used 112000kgs

Direct-material quantity variance=(96000-112000)*0.36

=-$5760 i.e.unfavourable

Direct-material purchase price variance

Direct-material purchase price variance=Budgeted direct material purchase price-Actual direct material purchase price

=112000(0.36-.040)

=112000*-0.04

=-$4480

It is unfavourable for the company

Direct-labor rate variance=Budgeted labor rate-Actual labor rate

Budgeted labor rate=$6.50per hour

Actual labour rate=$16200/2400

=$6.75 per hour

Actual labour hours=2400hrs

Direct labour rate variance=(6.50-6.75)*2400

=$600(unfavourable)

Direct-labor efficiency variance=(Actual hours-Standard hours)*Standard rate

=[2400-(16000*.13)]*6.5

=$2080 unfavourable