Question

Materials and Labor Variances

1. Horseco manufactures saddles.  The company set the following standards:  Leather per saddle:  10 feet. Cost per foot:  $2.  In June, it manufactured 6,000 saddles.  The company used 58,000 feet of leather.  It purchased 70,000 feet of leather for $147,000.   Calculate the materials price and efficiency variances.  

2. Kiteco makes kites.  Its standards are 2 hours of work at $30 per hour (including benefits) per kite. In March, employees worked 60,000 hours, made 32,000 kites and earned $1,725,000 in wages.  Calculate the labor rate and efficiency variances.  

Answer 1

Solution 1:

Actual price of leather = $147,000 / 70000 = $2.10 per feet

Material price variance = (SP - AP) * AQ Purchased = ($2 - $2.10) * 70000 = $7,000 U

Material efficiency variance = (SQ - AQ) * SP = (6000*10 - 58000) * $2 = $4,000 F

Solution 2:

Actual rate of labor = $1,725,000 / 60000 = $28.75 per DLH

Labor rate variance = (SR - AR) * AH = ($30 - $28.75) * 60000 = $75,000 F

Labor efficiency variance = (SH - AH) *SR = (32000*2 - 60000) * $30 = $120,000 F