Question

Material and Labor Variances

Topper Toys has developed a new toy called the Brainbuster. The company has a standard cost system to help control costs and has established the following standards for the Brainbuster toy:

       Direct materials: 8 diodes per toy at $0.30 per diode

       Direct labor: 1.2 hours per toy at $7 per hour

   During August, the company produced 5,000 Brainbuster toys. Production data on the toy for August follows:

  

   Direct materials: 70,000 diodes were purchased for use in production at a cost of $0.28    per diode. Some 20,000 of these diodes were still in inventory at the end of the month.

   Direct labor: 6,400 direct labor-hours were worked at a cost of $48,000.

Required:

1.   Compute the following variances for August (and circle whether they are favorable or unfavorable:

   a. Direct materials price and quantity variances.

   b. Direct labor rate and efficiency variances.

a.   Direct Materials Price Variance    =   __________   favorable or unfavorable

Direct Materials Quantity Variance    =    __________   favorable or unfavorable

b.   Direct Labor Rate Variance       =    __________   favorable or unfavorable

Direct Labor Efficiency Variance    =    __________   favorable or unfavorable

Answer 1

direct material price variance	$1000 (favorable)
direct material quantity variance	$3,000 (unfavorable)
direct labour rate variance	$3,200 (unfavorable)
direct labour efficiency variance	$2,800 (unfavourable)

1.

a.direct materials price variance = actual quantity * (standard price - actual price)

here,

actual quantity = 70,000 diodes purchased - 20,000 diodes in inventory =>50,000 diodes.

standard price = $0.30

actual price = $0.28..

=>50,000 diodes * ($0.30 - $0.28)

=>$1,000 (favourable).

direct materials quantity variance = standard price *(actual quanitty - standard quantity)

here,

standard price = $0.30

actual quantity = 50,000 diodes

standard quantity = 5,000 toys * 8 diodes =>40,000 diodes.

direct material quantity = $0.30*(50,000 - 40,000)

=>$3,000 (unfavorable).

b.direct labour rate variance = actual hours (standard rate - actual rate)

actual hours = 6,400 hours

standard rate =$7 per hour

actual rate = ($48,000 / 6,400) =>$7.50. per hour.

=> rate variance = 6,400 * ($7.00 - $7.50)

=>$3,200 (unfavorable).

direct labour effieciency variance = standard cost * (actual hours - standard hours)

standard cost = $7.00 per hour

actual hours = 6,400 hours

standard hours =5,000 hours *1.2 hours =>6,000 hours.

now,

$7.00 * (6,400 - 6,000)

=>$2,800 (unfavourable).