Question

Materials and Labor Variances

At the beginning of the year, Craig Company had the following standard cost sheet for one of its plastic products:

Direct materials (5 lbs. @ $4.00)	$20.00
Direct labor (2 hrs. @ $15.00)	30.00
Standard prime cost per unit	$50.00

The actual results for the year are as follows:

1. Units produced: 500,000.
2. Materials purchased: 3,500,000 pounds @ $5.35.
3. Materials used: 3,000,000 pounds.
4. Direct labor: 950,000 hours @ $12.96.

Required:

1. Compute price and usage variances for materials. Enter amounts as positive numbers and select Favorable or Unfavorable.

Material price variance	$
Material usage variance	$

2. Compute the labor rate and labor efficiency variances. Enter amounts as positive numbers and select Favorable or Unfavorable.

Labor rate variance	$
Labor efficiency variance	$

Answer 1

Ans.(1)

Material price variance = (Actual Price - Standard Price) x Actual Quantity

Actual Price = $5.35

Standard Price = $4

Actual Quantity = 3,500,000

= ($5.35 - $4 ) x 3,500,000

=4,725,000 U

Material usage variance = (Actual Quantity - Standard Quantity) x Standard Price

Actual Quantity = 3,500,000

Standard Quantity = 2,500,000 =(500,000 x 5 ibs)  (unit produce x 5 Ibs )

Standard Price = $4

= (3,500,000 - 2,500,000 ) x $4

=1,000,000 x $4

= 4,000,000 U

(2)

Labor rate variance = (Actual wage rate - Standard wage rate) x Actual Number labor hours

Actual wage rate = $12.96

Standard wage rate = $15

Actual Number labor hours= 950,000 hours

= ($12.96 - $15 ) x 950,000

= ($1,938,000) F

Labor efficiency variance = (Actual Number labor hours - Standard Number labor hours) x Standard wage rate

Actual Number labor hours = 950,000 hours

Standard Number labor hours = 1,000,000 hours = ( 500,000 x 2 hours)

Standard wage rate = $15

= (950,000 - 1,000,000) x $15

=(750,000) F