Question

Warrier Gear manufactures clothing. A flannel shirt requires the following:

Standard Direct Materials 2 square yards at $15 per yard

Standard Manufacturing Labor 1.5 hours at $25 per hour

During the third quarter, the company made 1,500 shirts and used 3,200 square yards of fabric costing $44,800. Direct labor totaled 2,100 hours for $56,700.

Required:

(A) Compute the direct manufacturing labor price and efficiency variances for the quarter. Show all computations.

(B) Describe 2 possible reasons for each of the following variances: direct manufacturing labor price variance and direct manufacturing efficiency variance.

Answer 1

	WARRIER GEAR
			PER UNIT
STANDARD DIRECT MATERIAL			30	(2*15)
STANDARD MANUFACTURING LABOUR			37.5	(1.5*25)
	STANDARD COSTS (1500 UNITS)
STANDARD DIRECT MATERIAL			45000	(2*15*1500)
STANDARD MANUFACTURING LABOUR			562500	(1.5*25*1500)
MATERIAL QTY			3000	(2*1500)
LABOUR HOURS			2250	(1.5*1500)
	ACTUAL COSTS
			THIRD QUARTER
		QTY PRODUCTED	1500 SHIRTS
	ACTUAL DIRECT MATERIAL USED			44800
	ACTUAL MANUFACTURING LABOUR			56700
				101500
MATERIAL QTY				3200	(GIVEN)
LABOUR HOURS				2100	(GIVEN)
A)	DIRECT MANUFACTURING LABOUR PRICE VARIANCE
		(ACTUAL RATE- STANDARD RATE)*ACTUAL HOURS WORKED
		ACTUAL RATE	LABOUR/NO OF UNITS
			37.8
		(37.8-25)*2100
		26880	UNFAVORABLE VARIANCE
	DIRECT LABOUR EFFICIENCY VARIANCE
		(STANDARD HOURS-ACTUAL HOURS)*STANDARD RATE
		(2250-2100)*25
		3750	FAVOURABLE VARIANCE
B)	DIRECT MANUFACTURING LABOUR PRICE VARIANCE
	THE VARIANCE IS UNFAVORABLE
	BECAUSE ACTUAL RATE(37.8) PER HOUR IS GREATER THAT STANDARD RATE (25)
	WHICH AS RESULTED INTO UNFAVOURABLE VARIANCE
	LABOUR PER HOUR HAS INCREASED AS COMPARED TO STANDARD RESULTING
	UNFAVOURABLE VARIANCE
	DIRECT LABOUR EFFICIENCY VARIANCE
	THE VARIANCE IF FAVORABLE
	THIS VARIANCE IS A DIFFERENCE BETWEEN HOURS TAKEN BY LABOUR
	AS STANDARD LABOUR HOURS TO MANUFACTURE 1500 SHIRT IS 2250
	WHEREASE LABOUR TOOK 2100 HOURS ONLY TO MANUFACTURE 1500
	SHIRTS. LABOUR WERE EFFICENT IN THEIR WORKING
	WHICH HAS RESULTED IN FAVOURABLE VARIANCE AND PROVES THAT LABOURERS
	ARE EFFICIENT IN THEIR WORK