Question

5. In early 2012, Duncan Manufacturing Inc. had budgeted for the production and sale of 20,000 units at a sales price of $25 per unit. The following information is available regarding the standard cost for each unit: Direct materials: $6.00 (3 pounds at $2.00 per lb) Direct labor: $3.50 (10 minutes of assembly at $.35 per minute) Actual results for 2012 were determined to be as follows: Number of units produced and sold: 18,000 units Sales revenue: $477,000 ($26.5 per unit) Direct materials cost: $119,925 (58,500 lbs purchased and used at $2.05 per lb) Direct labor cost: $51,300 (171,000 minutes at $.30 per minute) Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or unfavorable (U). A. Sales price Variance B. Direct materials price variance C. Direct materials usage variance

6. Refer to the scenario presented in problem #5. Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or unfavorable (U). A. Direct labor rate variance B. Direct labor efficiency variance.

Answer 1

Solution 5a:

Sales price variance = (BSP - ASP) * AQ sold = ($25 - $26.50) * 18000 = $27,000 Favorable

Solution 5B:

Direct material price variance = (SP - AP) * AQ = ($2 - $2.05) * 58500 = $2,925 Unfavorable

Solution 5C:

Direct material usage variance = (SQ - AQ) * SP = (18000*3 - 58500)*$2 = $9,000 unfavorable

Solution 6A:

Direct labor rate variance = (SR - AR) * Actual minutes = ($0.35 - $0.30) * 171000 = $8,550 Favorable

Solution 6B:

Direct labor efficiency variance = (Standard minutes - actual minutes)* SR = (18000*10 - 171000)*$0.35 = $3,150 favorable