Arrow Industries employos a standard cost system in which direct materials inven

Question

Arrow Industries employos 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 products.

Standard

Direct Materials 8 pounds $1.80 per pound $14.40

Direct Labor .25 hour $8.00 per hour 2.00

= 16.40

During November, Arrow purchased 162,000 pounds of direct materials at a total cost of $307,800. The direct labor cost for November were $35,880. Arrow manufactured 18,000 units of product during November using 140,000 pounds of direct materials and 4,600 direct labor hours.

What is the direct labor price (rate) variance for November?

Explanation / Answer

Direct Material Price Variance = (Standard Price-Actual Price)*Actual Quantity

                                             = (1.8-1.9)* 162,000

                                              = $ 16,200 Unfavoable

Actual Price of Material = Actual Cost/ Actual Quantity =307,800/162,000=1.90

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