Sande Corporation makes a product with the following standard costs: In November

Question

Sande Corporation makes a product with the following standard costs: In November the company's budgeted production was 2,900 units but the actual production was 3,000 units. The company used 27,670 grams of the direct material and 1,390 direct labor-hours to produce this output. During the month, the company purchased 31,700 grams of the direct material at a cost of $196,540. The actual direct labor cost was $29,607 and the actual variable overhead cost was $2,502. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The labor rate variance for November is:

Explanation / Answer

Materials price variance (standard price - actual price) X Actual quantity Standard price = 6.00 Actual price = 6.20 (196540/31700) Actual quantity = 27670 (6.00-6.20)X27670 = 5534 Unfavorable materials price variance. We know it is unfavorable because the result is negative. Also, we can tell because we spent more per gram than what was budgeted, which is not good--unfavorable.

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