Fair Practices, Inc (FP) created standard costs for direct material and direct l

Question

Fair Practices, Inc (FP) created standard costs for direct material and direct labor. In 2018, FP estimated the following standard costs for one of their products, the FP famous chocolate cake which had a white sugar frosting on the top as well as including walnuts and other ingredients in addition to the walnuts. (Don’t forget to designate if the variance is favorable or unfavorable. Round your numbers so that no decimal places are used)

                                          Budgeted quantity     Budgeted price
Direct materials           2.5 pounds                  $8.15 per pound
Direct labor                 0.50 hours                   $15.45 per hour

During May, FP produced and sold 1,400 cakes using 1,908 pounds of direct materials at an average cost per pound of $6.50 and 295 direct labor hours at an average wage of $15.95 per hour.

a) May's direct material flexible-budget variance is:
b) May's direct material price variance is:
c) May's direct material efficiency variance is:
d) May's direct labor flexible-budget variance is:
e) May's direct labor price variance is:
f) May's direct labor efficiency variance is:

Explanation / Answer

(a) May’s direct material flexible-budget;

Formula is as follow;

(Actual direct material costs – Budgeted direct material costs)

Actual direct material costs (1908 pounds * $6.50) = $12402

Budgeted direct material costs (2.5 * 1400 pounds * $8.15) = $28525

Thus direct material flexible-budget ($12402 – $28525) = $16123 (favourable)

(b) May’s direct material price variance;

Formula is as follow;

(Budgeted price – Actual price) * Actual quantity

($8.15 – $6.50) * 1908 = $3148.2 or $3148 (Favourable)

(c) May’s direct material efficiency variance;

Formula is as follow;

(Budgeted quantity – Actual quantity) * Budgeted price

(3500 – 1908) * $8.15 = $12974.8 or $12975 (Favourable)

(d) May’s direct labor flexible-budget;

Formula is as follow;

(Actual direct labor costs – Budgeted direct labor costs)

Actual direct labor costs (295 hours * $15.95) = $4705.25

Budgeted direct labor costs (0.5 * 1400 * $15.45) = $10815

Thus direct labor flexible-budget ($4705.25 – $10815) =

$6109.75 or 6110 (favourable)

(e) May’s direct labor price variance;

Formula is as follow;

(Budgeted price – Actual price) * Actual hours

($15.45 – $15.95) * 295 = $147.5 or $147 (Unfavourable)

(f) May’s direct labor efficiency variance;

Formula is as follow;

(Budgeted hours – Actual hours) * Budgeted price

(700 – 295) * $15.45 = $6257.25 or $6257 (Favourable)

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