Question

Saskatewan Can Company manufactures recyclable soft-drink cans. A unit of production is a case of 12 dozen cans. The following standards have been set by the production-engineering staff and the controller. Direct Labor: Quantity, 0.27 hour Rate, $13.50 per hour Direct Material: Quantity, 6 kilograms Price, $0.64 per kilogram Actual material purchases amounted to 290,400 kilograms at $0.660 per kilogram. Actual costs incurred in the production of 44,000 units were as follows: Direct labor: Direct material: $169,400 for 12,320 hours $178,596 for 270,600 kilograms Required: 1. Use the variance formulas to compute the direct-material price and quantity variances, the direct-material purchase price variance, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "O" for no effect (i.e., zero variance).) Direct-material price variance Direct-material quantity variance Direct-material purchase price variance Direct-labor rate variance Direct-labor efficiency variance

Answer 1

Solution

Material Price Variance	$           5,412.00	Unfavourable-U
Material quantity variance	$           4,224.00	Unfavourable-U
Direct material purchase price Variance	$ 5,808.00	Unfavourable-U
Labor rate variance	$           3,080.00	Unfavourable-U
Labor Efficiency variance	$           5,940.00	Unfavourable-U

Working

Material purchase Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    0.64	-	$                     0.66	)	x	290400
	-5808
	Variance		$             5,808.00			Unfavourable-U

.

Standard DATA for		44000	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 6 kilogram x 44000 Units)=264000 kilogram	$              0.64	$          168,960.00
Direct labor	( 0.27 Hour x 44000 Units)=11880 Hour	$           13.50	$          160,380.00

.

		44000	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	270600	$       0.66	$       178,596.00
Direct labor	12320	$     13.75	$       169,400.00

.

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    0.64	-	$                     0.66	)	x	270600
	-5412
	Variance		$             5,412.00			Unfavourable-U
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	264000	-	270600	)	x	$              0.64
	-4224
	Variance		$             4,224.00			Unfavourable-U

.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                  13.50	-	$                   13.75	)	x	12320
	-3080
	Variance		$             3,080.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	11880	-	12320	)	x	$           13.50
	-5940
	Variance		$             5,940.00			Unfavourable-U