Question

Question 2: Input price and input efficiency variances

The budgeted and actual data for direct materials and labor are as follows:

	Budgeted	Actual
DM price	$1 per pound	$0.75 per pound
DM quantity per unit	5 pounds per unit	6 pounds per unit
DL price	$8 per hour	$11 per hour
DL quantity per unit	0.3 hours per unit	0.4 hours per unit

Actual sales volume is 100 units. Budgeted sales volume is 80 units.

a) Without computations, characterize the following variances as favorable or unfavorable:
input price variance for DM F U

input efficiency variance for DM F U

input price variance for DL F U

input efficiency variance for DL F U


b) Compute the input price and input efficiency variances for DM and DL.
As a preliminary step, compute actual input quantity (total pounds or hours we actually used) and flexible budget input quantity (total pounds or hours we should have used for actual output):
    actual input quantity for DM =  pounds
    flexible budget input quantity for DM =  pounds
    actual input quantity for DL =  hours
    flexible budget input quantity for DL =  hours
Next, compute the variances. Enter favorable variances as a positive number and unfavorable variances as a negative number. Do NOT enter F or U.
    input price variance for DM = $
    input efficiency variance for DM = $
    input price variance for DL = $
    input efficiency variance for DL = $

Answer 1

Solution:

a) Without computations, characterize the following variances as favorable or unfavorable:

input price variance for DM - F

input efficiency variance for DM - U

input price variance for DL- U

input efficiency variance for DL - U

Actual Production for the month		100	units
Standard Cost Variance Analysis	Direct Materials
	Actual Output	Actual Price	Standard Output	Standard Price
Standard Quantity allowed for Actual Output at Standard Price	6	0.75	5	1	500
Actual Quantity of input at Standard Price	6	0.75	5	1	600
Actual Quantity of input at Actual Price	6	0.75	5	1	450
Material Quantity Variance	-100	U
Material Price Variance	150	F
Standard Cost Variance Analysis	Direct Labor
	Actual Hours	Actual Price	Standard Hours	Standard Price
Standard hours allowed for Actual Output at Standard Price	0.4	11	0.3	8	240
Actual Hours of input at Standard Price	0.4	11	0.3	8	320
Actual Hours of input at Actual Price	0.4	11	0.3	8	440
Labor Efficiency Variance	-80	U
Labor Price Variance	-120	U