Sonne Company produces a perfume called Whim. The direct materials and direct la

Question

Sonne Company produces a perfume called Whim. The direct materials and direct labor standards for one bottle of Whim are given below:

Direct Materials: Standard Quantity or Hours 7.50 ounces... Standard Rate or Price $2.40 per ounce...Standard Cost $18.00
Direct Labor: Standard Quantity or Hours .80 hours...Standard Price or rate $7.00 per hour...Standard Cost $5.60

During the most recent month, the following activity was recorded:
a. 13,250 ounces of material were purchased at a cost of $2.20 per ounce.
b. All of the material was used to produce 1,500 bottles of Whim.
c. 1,000 hours of direct labor time were recorded at a total labor cost of $9,000.

1. Compute the direct materials price and quantity variances for the month.
2. Compute the direct labor rate and efficiency variances for the month.

Explanation / Answer

Direct Material Price Variance
(Standard Price - Actual price) x Actual Quantity purchased

= (2.40 - 2.20) x 13250

= $2650 Favourable

Direct Material quantity Variance

(Standard Quantity for Actual Output x Standard Price) - (Actual Quantity used x Standard Price)

= (1500 x 7.5 x 2.4) - (13250 x 2.4)

= 27000 -31800

= $4800 Unfavourable

Direct labour rate variance

(Standard Rate - Actual Rate) x Actual Hour

= [7 - (9000/1000) ] x 1000

= $2000 Unfavourable

Direct labour efficiency variance

= (Standard Hour for actual output x Standard Rate) - (Actual Hour for Actual output x Standard Rate)

= (1500 x 0.8 x 7) - (1000 x 7)

= $7700 Favourable

Hope this helps!

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