Question

The budget for the month of May was for 11,600 units at a direct materials cost of $20 per unit. Direct labor was budgeted at 29 minutes per unit for a total of $104,400. Actual output for the month was 9,000 units with $140,000 in direct materials and $82,775 in direct labor expense. The direct labor standard of 29 minutes was obtained throughout the month. Variance analysis of the performance for the month of May would show a(n): (CMA adapted)

Answer 1

It is given that direct labor standard of 29 minutes was obtained throughout the month. So Labor Efficiency Variance is Nil.

Actual Price paid for each unit of direct material = $140,000 / 9,000 = $15.55

Materail Price Variance = (Standard Price - Actual Price) x Actual Units = (20 - 15.55) x 9,000 = $40,000

Material Usage Variance = (Standard Units - Actual Units) x Standard Price = (11,600 - 9,000) x 20 = $52,000

Labor Rate Variance = Labor Cost Variance - Labor Efficiency Variance = (104,400 - 82,775) - 0 = $21,625

Note: If you have any doubts or need any clarifications, feel free to reach us in comments. Kindly provide your valuable feedback.