Question

E9-5 Calculating Direct Materials and Direct Labor Variances [LO 9-3, 9-4] Crystal Charm Company makes handcrafted silver charms that attach to jewelry such as a necklace or bracelet. Each charm is adorned with two crystals of various colors. Standard costs follow: Standard Quantity Standard (Rate) Standard Unit Cost Silver 0.25 oz. $ 26.00 per oz. $ 6.50 Crystals 6.00 $ 0.25 per crystal 1.50 Direct labor 1.50 hrs. $ 16.00 per hr. 24.00 During the month of January, Crystal Charm made 1,600 charms. The company used 375 ounces of silver (total cost of $10,125) and 9,650 crystals (total cost of $2,219.50), and paid for 2,550 actual direct labor hours (cost of $39,525.00). Required: 1. Calculate Crystal Charm’s direct materials variances for silver and crystals for the month of January. (Round your intermediate calculations and final answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.) 2. Calculate Crystal Charm’s direct labor variances for the month of January. (Round your intermediate calculations and final answers to 2 decimal places.Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Answer 1

1. Materials price variance = (Standard price - actual price) x Material purchased
Silver = {$26 - ($10125 / 375)} x 375 = $375 Unfavorable
Crystal = {$0.25 - ($2219.50 / 9650)} x 9650 = $193 Unfavorable

Materials quantity variance = (Standard quantity - actual quantity used) x standard price
Silver = {(1,600 x 0.25) - 365} x $26 = $910 Favorable
Crystal = {(1,600 x 6) - 9650} x $0.25 = $12.50 Unfavorable

2. Labor rate variance = (Standard rate - actual rate) x Actual hours used
= {$16 - ($39525 / 2550)} x 2,550 = $1,275 Favorable

Labor efficiency variance = (Standard hours - actual hours) x Standard rate
= {(1600 x 1.5) - 2550} x $16 = $2,400 Unfavorable