The following information describes production activities of the Central Corp.:

Question

The following information describes production activities of the Central Corp.:

Raw materials used 16,000 lbs. at $4.05 per lb.
Factory payroll 5,545 hours for a total of $72,085

30,000 units were completed during the year
Budgeted standards for each unit produced:
        1/2 lb. of raw material at $4.15 per lb.  
        10 minutes of direct labor at $12.50 per hour

Compute the direct materials price and quantity and the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable. Please show all work and computations

Explanation / Answer

Hi,

Please find the answer as follows;

Direct Material Price Variance = Actual Quantity of Material Purchased *(Actual Rate - Standard Rate) = 30000*1/2*(4.15 - 4.05) = 1500 (Unfavorable)

Direct Material Quantity Variance = Standard Rate*(Actual Quantity of Material Used - Standard Quantity of Material Used for Actual Production) = 4.05*(30000*1/2 - 16000) = 4050 (Favorable)

Labor Rate Variance = Actual Hours *(Actual Rate - Standard Rate) = 30000*10/60*(12.50 - 72085/5545) = 2500 (Favorable)

Labor Efficiency Variance = Standard Rate*(Actual Hours - Standard Hours) = 72085/5545*(30000*10/60 - 5545) = 7085 (Favorable)

Thanks.

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