Question

Tractor Corporation produces toy tractors. The company uses the following direct cost categories:

Category	Standard Inputs for 1 output	Std. Cost per input
Direct Materials	4.00	$12.50
Direct Labour	1.40	9.50
Direct Marketing	0.54	5.50

Actual performance and budgeted performance for the company is shown below:

Actual output: (in units) 5,000

Direct Materials:

Materials costs	$299,000
Input purchased and used	23,000
Actual price per input	$13.00

Direct Manufacturing Labour:

Labour costs	$ 95,000
Labour-hours of input	9,500
Actual price per hour	$10.00

Direct Marketing Labour:

Labour costs	$ 40,000
Labour-hours of input	5,000
Actual price per hour	$ 8.00

Question 1: What is the price variance of the direct materials?

		a) $10,175 unfavourable
		b) $15,213 favourable
		c) $16,875 favourable
		d) $11,500 favourable
		e) $11,500 unfavourable

Question 2: What is the direct manufacturing labour efficiency variance?

		a) $500 favourable
		b) $672 favourable
		c) $500 unfavourable
		d) $28 favourable
		e) $672 unfavourable

Answer 1

Answer 1
Direct Material price variance = Actual Quantity of material used x [Actual price per unit of material - standard price of per unit material]
Actual quantity of material used = 23000 units
Actual price per unit of material = $13
standard price of per unit material = $12.50
Direct Material price variance = 23000 units x [$13 - $12.50] = $11,500 Unfavourable
The answer is Option e.
Answer 2
Direct manufacturing labour efficiency variance = Standard labor rate x [Actual Hours - Standard Hours]
Standard labor rate = $9.50 per hour
Actual manufacturing labor hours used = 9500 hours
Standard labor hours = 5000 units * 1.40 hours per unit = 7000 hours
Direct manufacturing labour efficiency variance = $9.50 x [9500 hours - 7000 hours]
Direct manufacturing labour efficiency variance = $23,750 Unfavorable