Question

Fabers, Inc. has established the following standards for production:

Materials:
      Kilograms per unit – 4.3 kg
      Cost per kilogram – $2.50
Direct Labor:
      Hours per unit – 0.7
      Cost per hour – $16.50

For the month of August, 50,000 units were produced. Actual results were:
Materials:
       Total cost – $540,000
       Kilograms used – 180,000      
Direct Labor:
       Total cost – $640,000
       Hours used – 40,000

      

1. What is the materials quantity variance (MQV) for August?

2. What is the labor rate variance (LRV) for August?

Answer 1

Answer 1

Given:

Standard Price	$     2.50
Standard quantity	215,000
Actual price	$     3.00
Actual Quantity	180,000

Now,

Material Quantity Variance =	(Standard quantity - Actual Quantity) * Standard Price
Material Quantity Variance =	(215000 - 180000) * $ 2.5
Material Quantity Variance =	$ 87,500 Favorable

Answer 2

Given:

Standard Rate	$ 16.50
Standard hours	35,000
Actual rate	$ 16.00
Actual hours	40,000

Now,

Labor Rate Variance =	(Standard Rate - Actual Rate) * Actual hours
Labor Rate Variance =	( $ 16.5 - $ 16) * 40000
Labor Rate Variance =	$ 20,000 favorable