Question

Zee Corporation has developed the following cost standards for the production of its leather backpacks:

	Standard Cost Per Backpack
Leather (2.0 yards × $25 per yard)	$50.00
Direct labor (2.3 hours × $10.00 per hour)	$23.00
Variable overhead (2.3 hours × $16.00 per hour)	$36.80

Variable overhead at Zee is applied on the basis of direct labor hours. The actual results for last month were as follows:

Number of backpacks produced	12,500
Direct labor hours incurred	27,950
Yards of leather purchased	26,640
Yards of leather used in production	26,080
Cost of leather purchased	$622,044
Direct labor cost	$243,165
Variable overhead cost	$455,585

The direct materials purchases variance is computed when the materials are purchased.

Required:

Compute the following variances for Zee.

a. Materials price variance.

b. Materials quantity variance.

c. Labor efficiency variance.

d. Variable overhead rate variance.

Answer 1

A) Material price variance = (standard price-actual price)actual quantity

= (25*26640-622044)

Material price variance = 43956 Favourable

b) Material quantity variance = (Standard quantity-actual quantity)standard price

= (12500*2-26080)25

Material quantity variance = 27000 Unfavourable

c) Labour efficiency variance = (standard hour-actual hour)standard rate

= (12500*2.30-27950)10

Labour efficiency variance = 8000 favourable

d) Variable overhead rate variance = (16*27950-455585) = 8385 Unfavourable