Question

Materials and Labor Variances

At the beginning of the year, Craig Company had the following standard cost sheet for one of its plastic products:

Direct materials (5 lbs. @ $4.00)	$20.00
Direct labor (2 hrs. @ $15.00)	30.00
Standard prime cost per unit	$50.00

The actual results for the year are as follows:

1. Units produced: 390,000.
2. Materials purchased: 2,730,000 pounds @ $5.65.
3. Materials used: 2,301,000 pounds.
4. Direct labor: 702,000 hours @ $13.68.

Required:

1. Compute price and usage variances for materials. Enter amounts as positive numbers and select Favorable or Unfavorable.

Material price variance	$fill in the blank 1	Unfavorable
Material usage variance	$fill in the blank 3	Unfavorable

2. Compute the labor rate and labor efficiency variances. Enter amounts as positive numbers and select Favorable or Unfavorable.

Labor rate variance	$fill in the blank 5	Favorable
Labor efficiency variance	$fill in the blank 7	Favorable

Answer 1

Ans. 1 A	Materials price variance = (Standard price - Actual price)* Actual quantity purchased
		($4.00 - $5.65) * 2,730,000
		$1.65 * 2,730,000
		$4,504,500	Unfavorable
Ans. 1 B	Materials quantity variance = (Standard quantity - Actual quantity used) * Standard price
		(1,950,000 - 2,301,000) * $4.00
		351,000 * $4.00
		$1,404,000	Unfavorable
	*Standard quantity = Actual output * Standard quantity per unit of output
		390,000 * 5 Ibs.
		1,950,000 Ibs.
	*Standard quanity and prices are less than actual, so the variances are unfavorable.
Ans. 2 A	Labor rate variance = (Standard rate - Actual rate) * Actual hours
		($15 - $13.68) * 702,000
		$1.32 * 702,000
		$926,640	Favorable
Ans. 2 B	Labor efficiency variance = (Standard hours - Actual hours) * Standard rate
		(780,000 - 702,000) * $4.00
		78,000 * $4.00
		$312,000	Favorable
	Standard hours = Actual units produced and sold * standard hours per unit
		390,000 * 2 hours
		780,000 hours
	*Standard hours and rate are higher than actual, so the variance is favorable.