Question

5. Tractor Corporation produces toy tractors. What is the efficiency variance for direct materials?

The company uses the following direct cost categories:

Category

Standard Inputs

for 1 output

Std. Cost

per input

Direct Materials

4.00

$12.50

Direct Labour

1.40

9.50

Direct Marketing

0.54

5.50

Actual performance for the company is shown below:

Actual output: 5,000 units

Direct Materials:

Materials costs

$299,000

Input purchased and used

23,000

Actual price per input

$13.00

Direct Manufacturing Labour:

Labour costs

$95,000

Labour-hours of input

9,500

Actual price per hour

$10.00

Direct Marketing Labour:

Labour costs

$40,000

Labour-hours of input

5,000

Actual price per hour

$8.00

Select one:

a. $37,500 unfavourable

b. $37,500 favourable

c. $36,500 favourable

d. $36,500 unfavourable

Answer 1

a. $37,500 unfavourable

Working:

Direct Material Efficiency Varinace

=

(Standard Quantity-Actual Quantity)*Standard Material Price per unit

=

(20000-23000)*12.50

=

$         37,500

Unfavorable

Working:

Standard quantity of materials

=

Actual Output*Standard quantity per unit of output

=

5000*4

=

20,000