Question

Camping Company manufactures camping tents from a lightweight synthetic fabric. Each tent uses the following standard material and labor cost.

	Standard Cost per Tent
Direct labor	2 hours	@ $10.50	$21
Direct Material	4 yards	@ $5.25	$21

The following data was recorded for February, the first month of operations:

Fabric purchased............................9,000 yards......................$5.00 per yard

Fabric used in production................7,000 yards

Direct labor used.............................3,400 hours......................$10.75 per hour

Actual number of tents produced:   1,650 tents

Required: Make sure you do not forget to label the variances U or F. You need to show your work either by cell reference or showing your calculation to the side.

1. Calculate the direct materials price and quantity variance and designate U or F. Please note that the materials price variance is based on actual material purchased and the quantity variance is based on material used.

Materials price variance

Materials Quantity variance

2. Calculate the direct labor rate and efficiency variances and designate U or F.

Labor rate variance

Labor Efficiency variance

3. Explain one possible reason for each of the preceding variances listed below.

Materials price variance

Materials quantity variance

Labor rate variance

Labor efficiency variance

Answer 1

Answer

• Workings

Actual DATA for		1650	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	9000	$                   5.00	$           45,000.00
Direct labor	3400	$                10.75	$           36,550.00

Standard DATA for		1650	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 4 yards x 1650 units)=6600 yards	$                   5.25	$       34,650.00
Direct labor	( 2 hours x 1650 units)=3300 hours	$                10.50	$       34,650.00

• Requirement 1

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                                5.25	-	$                       5.00	)	x	9000
	2250
	Variance		$              2,250.00			Favourable-F

Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	6600	-	7000	)	x	$                           5.25
	-2100
	Variance		$              2,100.00			Unfavourable-U

• Requirement 2

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                              10.50	-	$                    10.75	)	x	3400
	-850
	Variance		$                  850.00			Unfavourable-U

Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	3300	-	3400	)	x	$                        10.50
	-1050
	Variance		$              1,050.00			Unfavourable-U

• Requirement 3

Material Price Variance = Increase in market prices of material.
Material Quantity Variance = Extra wastage of material led to higher usage of material
Labor Rate Variance= Shortage of labor supply led to higher labor rate wages
Labor efficiency Variance = Inexperianced workers took more time to produce.