Question

Sanitex Inc. manufactures “Purox”, a hand sanitizer liquid at its Kamloops production facilities. The standard cost...

Sanitex Inc. manufactures “Purox”, a hand sanitizer liquid at its Kamloops production facilities. The standard cost of making a barrel of Purox follows:

Direct materials: 12 liters of Super Clorox at $1.50 per liter                         $18

Direct labor: 4 hours of labor at $16 per hour                                                    64

Variable overhead: applied at a rate of 10 per direct labor hour                        40

            Total standard variable cost per unit                                                  $122   

During the month of March, 200 barrels of Purox were manufactured. Sanitex released the following production cost relating to the manufacturing of these 200 barrels:

3000 liters of Super Clorox were purchased at a total cost of $4,320.

2,280 liters of Super Clorox were used in production.

840 hours of direct labor were incurred at at total cost of $13,356.

Note to students: Answer the question in the Excel worksheet template under the tab “Question 1” provided by your instructor.

Required:

Part 1: Calculate the direct material price and quantity variances.

Part 2: Calculate the direct labor rate and efficiency variances.

Homework Answers

Answer #1

(1)

(A)

Material price variance = actual quantity purchased x (standard price - actual price)
= 3000 x ($1.50 - $1.44)
= $180 Favorable
Where,
Actual price = material cost paid/units of material purchased
= $4320/3000 = $40

(B)
Material quantity variance = standard price x (standard quantity - actual quantity used)
= $1.50 x (2400 - 2280)
= $180 Favorable
Where,
Standard quantity = actual output x standard quantity per unit of output
= 200 x 12 = 2400 liters

(2)

(A)
Labor rate variance = actual hours x (standard rate - actual rate)
= 840 x ($16 - $15.90)
= $84 Favorable
Where,
Actual rate = actual labor cost/actual hours
= $13356/840 = $15.90

(B)
Labor efficiency variance = standard rate x (standard hours - actual hours)
= $16 x (800 - 840)
= $640 Unfavorable
Where,
Standard hours = actual output x standard hours per unit of output
= 200 x 4 = 800 hours

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