French Company manufactures a line of upholstered chairs, and has given you the

Question

French Company manufactures a line of upholstered chairs, and has given you the following information:

                                                                                Standards per chair

Direct materials                                                                2 square yards of material at $10 per square yard

Direct manufacturing labor                          .5 hour of labor at $20 per hour

The following data were compiled regarding actual performance:

Actual chairs produced                                                  20,000 chairs

Square yards of material purchased and used     37,000 square yards

Purchase price per square yard                                 $10.20

Direct manufacturing labor costs                               $176,400

Actual labor hours                                                           9,000

Labor price per hour                                                       $19.60

1 - Show computations for the direct material and direct labor variances. Give a plausible explanation of why each variance may have occurred.

2 - Suppose 60,000 square yards of material were purchased (at $10.20 per square yard), even though only 37,000 square yards were used. Compute the direct material variances using this information.

Explanation / Answer

(Actual Quantity - Standard Quantity) x Standard Price

Actual Cost -Standard Cost of Actual Hours

Actual qty Actual price Std price per unit Std Qty Actual cost Standard cost of actual qty Standard cost Variance in $ Formula DM price variance           37,000                                                      10.20           10.00     377,400.00                                      370,000.00              7,400.00 Unfavourable Actual cost- Standard cost of actual qty DM qty variance           37,000                                                      10.20           10.00         40,000                 30,000 favourable

(Actual Quantity - Standard Quantity) x Standard Price

DL rate variance              9,000                                                      19.60                 20           176,400                                            180,000                    3,600 favourable

Actual Cost -Standard Cost of Actual Hours

DL efficiency variance                                            180,000                                            200,000                 20,000 Unfavourable Standard Cost of Actual Hours- Standard Cost

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