Question

Misc. Ltd. has set up the following standards for materials and direct labour for a standard batch of 10,000 units:

Direct Materials: 10 kg. per unit @ Rs.30/kg.

Direct labour: 1 hr. per unit @ Rs. 20/hr.

The number of actual units produced was 9,810. During the month, material purchases amounted to 1,00,000 kg. at a total cost of Rs.31,00,000.

The actual rate paid for labour was Rs.21 per hour. Actual inputs used were: 98,073 kgs. of material and 9,800 hours of labour.

Find out the total direct material and labour cost variances with their rate and efficiency sub-variances.

Answer 1

Direct Material Price Variance = Actual Cost of Purchases - Actual Quantity Purchased x Standard Price
= $3100000 - 100000 x 30 = $100000 (U)

Direct Materal Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
= (98073 - 98100) x $30 = $810 (F)

Total Direct Material Cost Variance = Actual Quantity x Actual Price - Standard Quantity x Standard Price
= 98073 x $31 - 98100 x 30 = $97263 (U)

It can also be $99190 (U) i.e. $100000 - 810 (With using actual quantity purchased variance)

Direct Labor Rate Variane = (Actual Rate - Standard Rate) x Actual Hours
= ($21 - 20) x 9800 = $9800 (U)

Direct Labor Efficiency Variance = (Actual hours - Standard hours) x Standard rate
= (9800 - 9810) x $20 = $200 (F)

Direct Labor Cost Variance = $9800-200 = $9600 (U)