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 materials price and efficiency variances for the quarter. Show all computations.

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

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

Answer 1

						A		B
	Standard Cost:	Qty	Rate	PU		Direct Material:		Direct Labor:
	Direct Material	2.00	15.00	30.00		Price Variance:		Rate Variance:
	Direct Labor	1.50	25.00	37.50		(Standard Price-Actual Price)* Actual Qty		(Standard Price-Actual Price)* Actual Hour
						(15-14)3200		(25-27)*2100
	Actual Production	1,500				3200	Favourable	-4200	Unfavourable
	For Actuals:
	Standard Cost:	Qty	Rate	PU		Direct Material:		Direct Labor:
	Direct Material	3,000	15.00	45,000		Eff Variance:		Eff Variance:
	Direct Labor	2,250	25.00	56,250		(Standard Qty-Actual Qty)* SP		(Standard H-Actual H)* SP
						(3000-3200)*15		(2250-2100)*25
	For Actuals:					-3000	Unfavourable	3750	Favourable
	Actual Cost	Qty	Rate	PU
	Direct Material	3,200	14.00	44,800
	Direct Labor	2,100	27.00	56,700		C
						Direct Material Price Variance:	Market Value of Raw Material might have declined
						Direct Material Efficency Variance:	Low Quality Material
							Poor Usage by Production Team
						Direct Labor Rate Variance:	Labor Strike led to shortage of Labor
							Minimum Wages might have increased
						Direct Labor Eff Variance:	Standard working style might have increased