Question

Calculate and explain direct material and direct labor variances (Learning Objectives 1, 2, & 3)

Athena Fabrics manufactures a specialty monogrammed blanket. The following are the cost and labor standards for this blanket:

Direct material (fabric): 2.0 yards per blanket at $7.50 per yard Direct labor: 0.5 direct labor hours per blanket at $16.00 per hour

Actual results from last month’s production of 1,900 blankets are as follows:

Actual cost of 4,940 yards of direct material (fabric) purchased: $35,074 Actual yards of direct material (fabric) used: 4,490 Actual wages for 1,090 direct labor hours worked: $16,568

Requirements

1. What is the standard direct material cost for one blanket?

2. What is the actual cost per yard of fabric purchased?

3. Calculate the direct material price and quantity variances.

4. What is the standard direct labor cost for one blanket?

5. What is the actual direct labor cost per hour?

6. Calculate the direct labor rate and efficiency variances.

7. Analyze each variance and speculate as to what may have caused that variance.

8. Look at all four variances together (the big picture). How might they all be related? What variance is very likely to have caused the other variances?

Answer 1

	1)	Standard Direct Material Cost per blanket
		=2 yards *$7.50 per yard
		=$15 per blanket
	2)	actual cost per yard of fabric purchased
		=$35074/4940 yards
		=$7.1 per yard

3)

Direct Material Price Varaince = Actual Quantity Used * (Standard Price per unit - Actual Price Per Unit

= 4490 Units*($7.5 per yards-$7.1 per yards)

=$1796 (Favorable)

Direct Material Quantity Varaince = Standard Price Per Unit * (Standard Quantity For Actual Units Produced - Actual Quantity)

= $7.5 Per Unit ([1900Units*2 yards Per Unit] - [1900 Units *2.36 yards Per Unit])

=$5175 (Unfavorable)

	4)	standard direct labor cost for one blanket
		=0.50 hours *$16 per hour
		=$8 per blanket
	5)	actual direct labor cost per hour
		=$16568/1090 hours
		=$15.2 per hour

6)

Direct Labor Rate Varaince = Actual Hours * (Standard Rate Per Hour - Actual Rate Per Hour)

= 1090 Hours*($16 per hour-$15.2 per hour)

=$872(Favorable)

Direct Labor Efficiency Variance = Standard Rate Per Hour * (Standard Hours For Actual Units Produced - Actual Hours)

= $16 Per Hour ([1900Units*0.5 Hours Per Unit] - [1900 Units *0.573684210526316 Hours Per Unit])

=$2240 (Unfavorable)