DM Quantity: SP (AQ – SQ) DL Efficiency: SR (AH – SH)
DM Price: AQ (AP – SP) DL Rate: AH (AR – SR)
Total DM: [(AQ)(AP)] – [(SQ)(SP)] Total DL: [(AH)(AR)] – [(SH)(SR)]
Standard material cost $3.90 per pound
Standard direct labor cost $6.00 per hour
Standard pounds per unit 5
Standard labor hours per unit 3
Material purchased and used 39,500 pounds
Direct labor used 25,000 hours
Actual material cost $4.05 per pound
Actual labor cost $6.95 per hour
Number of units actually produced 8,000 units
Number of units planned 10,000 units
Required:
Calculate each of the following and state whether the variance is favorable or unfavorable:
a. materials quantity variance
b. materials price variance
c. labor efficiency variance
d. labor rate variance
Activity #6 – Possible causes of variances
At the end of the year, your company had the following variances:
Direct material price variance $3,000 F
Direct material usage variance $3,500 U
Direct labor rate variance $5,200 U
Direct labor efficiency variance $7,000 F
Give at least one possible cause for each of the variances and discuss the possible relationships between
them.
Copyright© 2020, School of Accountancy, Arizona State University
Ch. 11 –
Activity #5 – Calculate Direct Materials and Direct Labor Variances
Reflections, Inc. is a company that manufactures premium car wax. The company uses a standard cost
system. From the accounting records of the firm you obtain the following information:
DM Quantity: SP (AQ – SQ) DL Efficiency: SR (AH – SH)
DM Price: AQ (AP – SP) DL Rate: AH (AR – SR)
Total DM: [(AQ)(AP)] – [(SQ)(SP)] Total DL: [(AH)(AR)] – [(SH)(SR)]
Activity #7: Additional Practice with Direct Material and Direct Labor Variances:
Caballero Corporation produces high-quality leather saddles. The company has a standard cost system
and has set the following standards for materials and labor:
During the year Caballero produced 150 saddles. Actual leather purchased was 3,100 strips, at $12 per
strip. There was no beginning or ending inventories of leather. Actual direct labor was 2,500 hours at $16
per hour.
A. Calculate the labor rate variance and the labor efficiency variance, respectively.
B. Compute the materials price variance and the materials quantity variance, respectively.
C. Compute the total budget variance for materials and the total variance for direct labor.
Copyright© 2020, School of Accountancy, Arizona State University
Leather (20 strips @ $15) $300
Direct labor (15 hours @ $15) 225
Total prime cost $525
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