Problem Seven Controller Tri Nuygen is analyzing the direct material and direct

Question

Problem Seven

Controller Tri Nuygen is analyzing the direct material and direct labor variances for June. The following information comes from the accounting records. The product is a reinforcement bar used in construction.

Direct   material cost for 575,000 lbs of material

$172,500

Pounds   used in production

550,000   lbs

Direct   labor costs for 230,000 hours

$4,140,000

Units   produced

900,000

The   standard cost for one bar is:

                            Direct materials:   0.5 lbs at $0.25 per lb

                            Direct labor 0.25   hours at $20 per hour

Required: Calculate (a) the direct-material price variance, the (b) direct-material quantity                              variance, (c) the direct-labor rate variance, and (d) the direct-labor efficiency variance.

       Compute the following variances for June, and tell if they are favorable or unfavorable.                    

                                                                                                                        

                                                                                Amount                          Favorable/unfavorable

(a)    Direct-material price variance             ____________________        __________________

(b)   Direct-material quantity variance        ____________________        __________________

(c)    Direct-labor rate variance                    ____________________        __________________

  

Direct   material cost for 575,000 lbs of material

     

$172,500

     

Pounds   used in production

     

550,000   lbs

     

Direct   labor costs for 230,000 hours

     

$4,140,000

     

Units   produced

     

900,000

     

     

     

The   standard cost for one bar is:

     

     

                            Direct materials:   0.5 lbs at $0.25 per lb

     

     

                            Direct labor 0.25   hours at $20 per hour

     

   Controller Tri Nuygen is analyzing the direct material and direct labor variances for June. The following information comes from the accounting records. The product is a reinforcement bar used in construction. Required: Calculate (a) the direct-material price variance, the (b) direct-material quantity (c) the direct-labor rate variance, and (d) the direct-labor efficiency variance. Compute the following variances for June, and tell if they are favorable or unfavorable.

Explanation / Answer

Hi,

Please find the answer as follows:

Direct Material Price Variance = Actual Quantity of Material Purchased *(Actual Rate - Standard Rate) = 575000*(172500/575000 - .25) = 28750 (Uunfavorable)

Direct Material Quantity Variance = Standard Rate*(Actual Quantity of Material Used - Standard Quantity of Material Used for Actual Production) = .25*(550000 - .5*900000) = 25000 (Unfavorable)

Labor Rate Variance = Actual Hours *(Actual Rate - Standard Rate) = 230000*(4140000/230000 - 20) = 460000 (Favorable)

Labor Efficiency Variance = Standard Rate*(Actual Hours - Standard Hours) = 20*(230000 - 900000*.25) = 100000 (Unfavorable)

Thanks.

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