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.
(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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