Question

Saskatewan Can Company maunfactures recyclable soft drink cans. A unit of production is a case of 12 dozen cans. The following standards hace been set by the production engineering staff and the contoller.

Direct Labor:

Quanity , .25 hour

  Rate , $16 per hour

Direct material:

Quantity , 4 kilograms

Price, $.80 per kilogram

Actual material purchases amounted to 240,000 kilograms at $.81 per kilogram. Actual costs incurred in the production of 50,000 units were as follows:

Direct labor : $ 211,900 fro 13,000 hours

Direct material : $ 170,100 for 210,000 kilograms

1. Use the variance formulas to compute the direct material price and quantity variances, the direct material purchase price variance , and the the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

2. Construct an Excel speadsheet to solve the preceding requirement. Show how the solution will change if the following information changes: the standard direct labor rate is $15 per hour, and the standard direct material price is $.79 per kilogram.

Answer 1

1	Standard Data:
		Quantity	Rate	Total
	Direct Material	4.00	0.80	3.20
	Direct Labor	0.25	16.00	4.00
	Standard Data for Actual Quanity:
		Quantity	Rate	Total		-10,100
	Direct Material	2,00,000	0.80	1,60,000		-11,900
	Direct Labor	12,500	16.00	2,00,000
	Actual Data
		Quantity	Rate	Total
	Direct Material	2,10,000	0.81	1,70,100
	Direct Labor	13,000	16.30	2,11,900
	Direct Material Variances					Direct Labor Variances
	Price:	(SP-AP)*AQ Used				Price:	(SP-AP)*AH Used
		(0.80-0.81)*210000					(16.00-16.30)*13000
		-2100	Unfavourable				-3900	Unfavourable
	Efficiency	(SQ-AQ)*SP				Efficiency	(SH-AH)*SP
		(200000-210000)*0.80					(12500-13000)*16
		-8000	Unfavourable				-8000	Unfavourable
	Total	-10100	Unfavourable			Total	-11900	Unfavourable
2	Standard Data:
		Quantity	Rate	Total
	Direct Material	4.00	0.79	3.16
	Direct Labor	0.25	15.00	3.75
	Standard Data for Actual Quanity:
		Quantity	Rate	Total		-12,100
	Direct Material	2,00,000	0.79	1,58,000		-24,400
	Direct Labor	12,500	15.00	1,87,500
	Actual Data
		Quantity	Rate	Total
	Direct Material	2,10,000	0.81	1,70,100
	Direct Labor	13,000	16.30	2,11,900
	Direct Material Variances					Direct Labor Variances
	Price:	(SP-AP)*AQ Used				Price:	(SP-AP)*AH Used
		(0.79-0.81)*210000					(15.00-16.30)*13000
		-4200	Unfavourable				-16900	Unfavourable
	Efficiency	(SQ-AQ)*SP				Efficiency	(SH-AH)*SP
		(200000-210000)*0.79					(12500-13000)*15
		-7900	Unfavourable				-7500	Unfavourable
	Total	-12100	Unfavourable			Total	-24400	Unfavourable

1	Standard Data:
		Quantity	Rate	Total
	Direct Material	4.00	0.80	3.20
	Direct Labor	0.25	16.00	4.00
	Standard Data for Actual Quanity:
		Quantity	Rate	Total		-10,100
	Direct Material	2,00,000	0.80	1,60,000		-11,900
	Direct Labor	12,500	16.00	2,00,000
	Actual Data
		Quantity	Rate	Total
	Direct Material	2,10,000	0.81	1,70,100
	Direct Labor	13,000	16.30	2,11,900
	Direct Material Variances					Direct Labor Variances
	Price:	(SP-AP)*AQ Used				Price:	(SP-AP)*AH Used
		(0.80-0.81)*210000					(16.00-16.30)*13000
		-2100	Unfavourable				-3900	Unfavourable
	Efficiency	(SQ-AQ)*SP				Efficiency	(SH-AH)*SP
		(200000-210000)*0.80					(12500-13000)*16
		-8000	Unfavourable				-8000	Unfavourable
	Total	-10100	Unfavourable			Total	-11900	Unfavourable
2	Standard Data:
		Quantity	Rate	Total
	Direct Material	4.00	0.79	3.16
	Direct Labor	0.25	15.00	3.75
	Standard Data for Actual Quanity:
		Quantity	Rate	Total		-12,100
	Direct Material	2,00,000	0.79	1,58,000		-24,400
	Direct Labor	12,500	15.00	1,87,500
	Actual Data
		Quantity	Rate	Total
	Direct Material	2,10,000	0.81	1,70,100
	Direct Labor	13,000	16.30	2,11,900
	Direct Material Variances					Direct Labor Variances
	Price:	(SP-AP)*AQ Used				Price:	(SP-AP)*AH Used
		(0.79-0.81)*210000					(15.00-16.30)*13000
		-4200	Unfavourable				-16900	Unfavourable
	Efficiency	(SQ-AQ)*SP				Efficiency	(SH-AH)*SP
		(200000-210000)*0.79					(12500-13000)*15
		-7900	Unfavourable				-7500	Unfavourable
	Total	-12100	Unfavourable			Total	-24400	Unfavourable