Question

HalimSdnBhd uses a standard costing system. The standard cost card for one product is shown below:

Direct Material 4 kg at RM5 per kg                      RM 20

Direct Labor 2 hours at RM8 per hour 16

Variable Overhead 2 hours at RM 7.5 per hour15

Total Product Cost 51

The budgeted output and sales was 1,000 units. Actual output for the period was 1,300 units . Actual cost was as follows:

Direct Material:                       5,000 kg, costing 22,750

Direct Labor:                      2,860 hours, costing 21,450

Required:

Compute the following variances, indicating whether each variance is favorable or unfavorable.

Total of direct- material variances.

Direct-material price variance.

Direct-material usage variance.

Total of direct-labor variances.

Direct-labor rate variance.

Direct-labor efficiency variance.

Answer 1

1.

Actual price of direct material = Total cost of material/total quantity

          = $ 22,750/5,000 = $ 4.55 per kg

Direct material price variance = (Actual price – Standard price) x Actual quantity

                                          = ($ 4.55 - $ 5) x 5,000 = $ 0.45 x 5,000 = - $ 2,250        F

2.             

Standard quantity of direct material for actual production

= Standard material quantity needed per unit x actual unit of production

= 4 kgs x 1,300 = 5,200 kgs

Direct material usages variance = (Actual quantity - Standard quantity) x Standard price

                                             = (5,000 – 5,200) x $ 5

                                            = - 200 x $ 5 = - $ 1,000      F

3.

Actual direct labor rate = total direct labor cost/No. of hours worked

                                          = $ 21,450/2,860 = 7.50 per hour

Labor rate Variance = (Actual rate - Standard rate) × Actual hour

                                     = ($ 7.50 - $ 8) x 2,860

                                     = - $ 0.50 x 2,860 = - $ 1,430       F

4.

Standard hours of direct labor for actual production

= Standard hours needed per unit x actual unit of production

= 2 hours x 1,300 = 2,600 hours

Labor efficiency Variance = (Actual hours - Standard hours) x Standard rate

                                    = (2,860 – 2,600) x $ 8

                = 260 x $ 8 = $ 2,080      U