Direct Material and Direct Labor Variances Benderboard produces corrugated board

Question

Direct Material and Direct Labor Variances

Benderboard produces corrugated board containers that the nearby wine industry uses to package wine in bulk. The company uses a standard cost system to account for manufacturing costs. The standard costs for a one bulk container include the following:

Direct materials (6 pounds at $5 per pound) $ 30.00

Direct labor (2/3 hour at $30 per hour) 20.00

Manufacturing overhead 10.00

Total cost/container $ 60.00

At the end of May, the ledgers show the following data:

DEBIT

CREDIT

Sales

$ 500,000

Accounts payable for purchases of direct materials

136,500

Direct materials purchase price variance

$ 6,500

Direct materials usage (quantity) variance

5,000

Direct labor rate variance

4,200

Direct labor efficiency variance

6,000

The firm pays all its purchases in the month following the month of purchase. The firm manufactured and sold 4,500 containers in May. All variances are identified and recorded at the earliest possible time.

REQUIRED: Compute each of the following items for the firm for the month of May. Show all of your computations.

1. Total standard direct labor cost for units produced in May.

2. Total direct labor-hours worked.

3. Actual direct labor hourly wage rate.

4. Total standard quantity of direct materials (in pounds) for the containers manufactured.

5. Total pounds of direct materials used.

6. Total pounds of direct materials purchased.

7. Actual direct materials price per pound.

DEBIT

CREDIT

Sales

$ 500,000

Accounts payable for purchases of direct materials

136,500

Direct materials purchase price variance

$ 6,500

Direct materials usage (quantity) variance

5,000

Direct labor rate variance

4,200

Direct labor efficiency variance

6,000

Explanation / Answer

1

Calculation of Total standard direct labor cost for units produced in May:

Units produced

4500

Standard Direct Labor cost per unit

$          20

Total standard direct labor cost for units produced in May = 4500*20 =

$    90,000

2

Calculation of Total direct labor-hours worked:

Given :

Direct labor efficiency variance

6000 Credit

Formula :

Direct labor efficiency variance = (Actual hours - Standard Hours )* Standard Rate

Standard hours = 4500 Units * 2/3 hours =

3000

Stnadard Rate =

$30

Hence ,

-6000 = (Actual hours - 3000 )* 30

-6000 / 30 = Actual hours - 3000

-200 = Actual hours - 3000

Actual Hours = 3000-200 = 2800

Total direct labor-hours worked

2800

3

Calculation of Actual direct labor hourly wage rate:

Given:

Direct labor rate variance

4200 Debit

Formula :

Direct labor rate variance = (Actual Rate - Standard Rate )* Actual Hours

Stnadard Rate =

$30

Actual Hours =

2800

Hence,

4200 = (Actual Rate - 30) *2800

4200 / 2800 = Actual Rate - 30

1.5 = Actual Rate - 30

Actual Rate = 30-1.5 = 28.5

Actual direct labor hourly wage rate =

$28.50

4

Calculation of Total standard quantity of direct materials (in pounds) :

Units produced

4500

Standard Direct Material Quantity per unit

6 Pounds

Total standard quantity of direct materials (in pounds) = 4500*6 =

27000

1

Calculation of Total standard direct labor cost for units produced in May:

Units produced

4500

Standard Direct Labor cost per unit

$          20

Total standard direct labor cost for units produced in May = 4500*20 =

$    90,000

2

Calculation of Total direct labor-hours worked:

Given :

Direct labor efficiency variance

6000 Credit

Formula :

Direct labor efficiency variance = (Actual hours - Standard Hours )* Standard Rate

Standard hours = 4500 Units * 2/3 hours =

3000

Stnadard Rate =

$30

Hence ,

-6000 = (Actual hours - 3000 )* 30

-6000 / 30 = Actual hours - 3000

-200 = Actual hours - 3000

Actual Hours = 3000-200 = 2800

Total direct labor-hours worked

2800

3

Calculation of Actual direct labor hourly wage rate:

Given:

Direct labor rate variance

4200 Debit

Formula :

Direct labor rate variance = (Actual Rate - Standard Rate )* Actual Hours

Stnadard Rate =

$30

Actual Hours =

2800

Hence,

4200 = (Actual Rate - 30) *2800

4200 / 2800 = Actual Rate - 30

1.5 = Actual Rate - 30

Actual Rate = 30-1.5 = 28.5

Actual direct labor hourly wage rate =

$28.50

4

Calculation of Total standard quantity of direct materials (in pounds) :

Units produced

4500

Standard Direct Material Quantity per unit

6 Pounds

Total standard quantity of direct materials (in pounds) = 4500*6 =

27000

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