Arrow Industries employs a standard cost system in which direct materials invent

Question

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product.

During November, Arrow purchased 146,000 pounds of direct materials at a total cost of $296,500. The total factory wages for November were $27,750, 90% of which were for direct labor. Arrow manufactured 9,000 units of product during November using 79,800 pounds of direct materials and 2,360 direct labor hours.

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product.

Explanation / Answer

Calculation of Direct labor efficiency variance for November,

Total factory wages = $27750

Actual Direct labor = 90% of $27750 = $24975

Actual Cost per direct labor hours = $24975/2360 = $10.58262711 per hour

Actual direct labor cost per unit = $24975/9000 = $2.775 per unit

Standard labor hours for 9000 units = 9000*0.25 hour per unit = 2250 hours

Actual labor hours = 2360 hours

Excees hours = (2360-2250) = 110 hours

Direct labor efficiency variance = 110 hours * Standard rate = 110 hrs * 11 per hour = $1210 Unfavourable

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