E34-4 Calculating Direct Materials and Direct Labor Variances Suds & Cuts is a l

Question

E34-4 Calculating Direct Materials and Direct Labor Variances Suds & Cuts is a local pet grooming shop owned by Collin Bark. Collin has prepared the following standard cost card for each dog bath given: LO34-3, 34-4 Standard QuantityStandard Rate Standard Unit Cost Shampoo Water Direct labor SO.10 per oz. S0.05 per gal. $9.00 per hr $0.20 1.00 6.75 2 oz. 20 gal. 0.75 hr During the month of July. Collin's employees gave 360 baths. The actual results were 725 ounces of shampoo used (cost of SI16. 6.500 gallons of water used (cost of S455), and labor costs for 230 hours (cost of $2.300). Required 1. Calculate Suds & Cuts direct materials variances for both shampoo and water for the month of July 2. Calculate Suds & Cuts direct labor variances for the month of July. 3. Identify a possible cause of each variance

Explanation / Answer

For shampoo

Price variance = AQ ( SR - AR) =  725 (0.10 - 0.16) = 43.5 U

Quantity variance = SR(SQ - AQ) = 0.10(720 - 725) = 0.50 U

Spending variance = 72 - 116 = 44 U

For water

Price variance = AQ ( SR - AR) = 6500 (0.05 - 0.07) = 130 U

Quantity variance = SR(SQ - AQ) = 0.05(7200 - 6500) = 35 F

Spending variance = 360 - 455  = 95 U

For labor

Price variance = AH ( SR - AR) = 230 ( 9 - 10) = 230 U

Efficiency variance = SR(SH - AH) = 9 (270 - 230 ) = 360 F

Spending variance = 2430 - 2300  = 130 F

Question - 3

Price variance is due to the deviation of AR ( actual rate ) from the predefined SR (standard rate). Quantity or Efficiency is due to deviation of AQ ( actual quantity) from the Standards specified for usage of material or hours of labor allowed.

Spending variance is the result of both price and quantity factors

SQ SR AMOUNT AQ AR AMOUNT 720 0.1 72 725 0.16 116

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