Question

Wright, Inc. manufactures a product that has the following standard costs:

Direct materials: 30 yards at $4.75 per yard                 $142.50

Direct labor: 7 hours at $18.00 per hour                       126.00

   Total                                                                           $268.50

The following information pertains to July:

Direct material costs 20,000 yards at $4.50 per yard, or $90,000

(quantity purchased and quantity used are the same).

Direct labor: 4,500 hours at $18.25 per hour, or $82,125

Actual completed production: 650 units

Answer and Show Work:

Calculate the following variances and indicate whether each variance is favorable or unfavorable using F for favorable and U for unfavorable.

Direct-material price
Direct-material quantity
Direct-labor rate
Direct-labor efficiency

Answer 1

Computation of Material Price and Quantity Variances:

Given data,

Standard Price of Direct Material, SP                                                       = $4.75

Actual Price of Direct Material, AP                                                            = $4.5

Actual Quantity, AQ                                                                                        = 20000 yards

Standard Quantity, SQ for actual output                                                                = 30 * 650 = 19500 pounds

[1unit – 30 yards, 650 units - ? pounds]                

Material Price Variance = (Standard Price – Actual Price) * Actual Quantity

= (4.75-4.5) * 20000

= $5000 F

Material Quantity Variance = (Standard Quantity – Actual Quantity) * Standard Price

= (19500-20000) * 4.75

= $2375 U

Computation of Labor rate and efficiency variances:

Given data,

Standard rate of direct manufacturing labor, SR                                 = $18

Actual Rate of direct manufacturing labor, AR                                     = $18.25

Actual hours, AH                                                                                              = 4500 hrs

Standard hours for actual quantity                                                           = 7*650 = 4550 hrs          

[1unit – 7 hrs, 650 units - ? hrs]

Direct Manufacturing labor rate variance = (Standard Rate – Actual Rate) * Actual Hours

= (18 – 18.25) * 4500

= $ 1125 U

Direct Manufacturing Labor Efficiency Variance = (Standard hours – Actual Hours) * Standard Rate

= (4550 - 4500) * 18

=$900 F

Direct Material Price Variance = $5000 F

Direct Material Quantity Variance = $2375 U

Direct Labor Rate Variance = $1125 U

Direct Labor Efficiency Variance = $900 F