Question

Malden Outdoor Products Inc. produces several products, including handmade large fiberglass planters for outdoor displays. The firm, which began operations at the beginning of this year, uses a standard cost system. The standard costs for one large planter are: Direct material (3 lbs. @ $8.00) $ 24.00 Direct labor (2 hrs. @ $15.00) 30.00 Variable overhead 24.00 Fixed overhead 6.00 Standard cost per unit $84.00 The $6.00 fixed overhead rate is based on total budgeted fixed overhead costs of $18,000 and estimated sales of 3,000 units. There were no changes in any inventory account during the period. The company produced and sold 3,100 units at the following costs: Direct materials (9,000 lbs.) $ 81,270 Direct labor (6,000 hrs.) 78,000 Variable overhead 76,000 Fixed overhead 16,500 Total production costs incurred $251,770 Calculate 1-4 and use calculations to answer question 5:

1-What is the direct materials price variance

2-What is the direct material quantity vaiance

3- what is the direct labor rate variance

4- what is the direct labor efficiency variance

5- What do the flexible budget variances in question 9, and the direct cost variances in Question 10 through 13 above tell the manager about Malden outdoor products operations this year?

Answer 1

1. Direct Materials Price Variance = (Standard Price – Actual Price) x Actual Quantity

= (8 - 81,270/ 9,000) x 9,000

= (8 - 9.03) x 9,000

= -9,270 or 9,270 Unfavorable Variance

2. Direct Material Quantity Variance = (Standard Quantity – Actual Quantity) x Standard Price

= (3,100 x 3 - 9,000) x 8

= (9,300 - 9,000) x 8

= 2,400 Favorable Variance

3. Direct Labor rate variance = (Actual rate - Standard rate) x Actual hours worked

= (78,000 / 6,000 - 15) x 6,000

= -12,000 or 12,000 Favorable Variance

4. Direct Labor efficiency variance = (Actual hours - Standard hours) x Standard rate

= (6,000 - 3,100 x 2) x 15

= (6,000 - 6,200) x 15

= -3,000 or 3,000 Favorable Variance

5. Cannot answer as no information about question 9 and question 10 through 13 is provided.