French Company manufactures a line of upholstered chairs, and has given you the
ID: 2445001 • Letter: F
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
Answer : 1
Direct Material Variances
Material Price Variance
(Actual Material Purchased * Actual Price) - (Actual Quantity * Standard Price)
=(37000*10.20) - (37000*10)
= 377400-370000
=7400 (unfavaurable)
Material Quantity variance
(Actual Quantity of material used*Standard Price) - (Standard quantity of material allowed * standard price)
=(37000*10)-(40000*10)
= 370000-400000
= 30000 (Favauable)
Direct Labour Rate Variance
(Actual direct labour hour worked*Actual rate)-( Actual direct labour hour worked*standard Rate)
= (9000*19.60) - (9000*20)
= 176400-180000
=3600 (favarable)
Direct Labour Effeciency Variance
= (actual Direct labour hour worked * Standrad Rate) - ( Standard direct labour hour allowed * standrad rate)
= (9000*20) - (10000*20)
= 180000-200000
= 20000 (favourable)
Material price varaince is slightly unfavarable due to slightly price increase of Raw material while material quantity varaince is favorable due to use of efficiently of dirct material which cover the unfaourable price varaince.
Direct rate labour variance is favourable to decrase the cost of labour from standard cost and labour effeciancy varaince also favourable due to effective use of labour.
Answer -2
Direct Material Variances
Material Price Variance
(Actual Material Purchased * Actual Price) - (Actual Quantity * Standard Price)
=(60000*10.20) - (60000*10)
= 612000-600000
=12000 (unfavaurable)
Material Quantity variance
(Actual Quantity of material used*Standard Price) - (Standard quantity of material allowed * standard price)
=(37000*10)-(40000*10)
= 370000-400000
= 30000 favourable
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