Orion Corporation has established the following standards for the prime costs of

Question

Orion Corporation has established the following standards for the prime costs of one unit of its chief product, dartboards.

During June, Orion purchased 425,000 pounds of direct material at a total cost of $935,000. The total wages for June were $226,368, 75 percent of which were for direct labor. Orion manufactured 27,000 dartboards during June, using 394,200 pounds of the direct material purchased in June and 35,370 direct-labor hours.

1. Direct Material Variance

2. Direct Material Quantity Variance

3. Direct Material Purchase Price Variance

4. Direct Labor Rate Variance

5. Direct Labor Efficiency Variance

Standard Quantity Standard Price or Rate Standard Cost Direct material 15.00 pounds $ 2.00 per pound $ 30.00 Direct labor 1.20 hour $ 6.00 per hour 7.20 Total $ 37.20

Explanation / Answer

Standard Quantity (SQ)

15*27000

405000

Standard Price (SP)

2

Actual Quantity (AQ)

394200

Actual Price (AP)

935000/425000

2.2

Direct Material Variance = SP*SQ - AP*AQ

Direct Material Variance = (2*405000) - (2.2*394200)

Direct Material Variance = 810000 - 867240

Direct Material Variance = - 57240

Direct Material Variance = 57240 Unfavourable

Direct Material Quantity Variance = SP*(SQ - AQ)

Direct Material Quantity Variance = 2*(405000 - 394200)

Direct Material Quantity Variance = 2*10800

Direct Material Quantity Variance = 21600

Direct Material Quantity Variance = 21600 Favourable

Direct Material Price Variance = AQ *(SP - AP)

Direct Material Price Variance = 394200 *(2 - 2.2)

Direct Material Price Variance = 394200 *( - 0.2)

Direct Material Price Variance = -78840

Direct Material Price Variance = 78840 Unfavourable

Standard Hours

1.20*27000

32400

Standard Rate

6

Actual Hours

35370

Actual Rate

226368/35370

6.4

Direct Labour Rate Variance = AH*(SR - AR)

Direct Labour Rate Variance = 35370*(6 - 6.4)

Direct Labour Rate Variance = 35370*(-0.4)

Direct Labour Rate Variance = -14148

Direct Labour Rate Variance = 14148 Unfavourable

Direct Labour Efficiency Variance = SR*(SH - AH)

Direct Labour Efficiency Variance = 6*(32400 - 35370)

Direct Labour Efficiency Variance = 6*(-2970)

Direct Labour Efficiency Variance = -17820

Direct Labour Efficiency Variance = 17820 Unfavourable

Standard Quantity (SQ)

15*27000

405000

Standard Price (SP)

2

Actual Quantity (AQ)

394200

Actual Price (AP)

935000/425000

2.2

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