Question

Saskatewan Can Company manufactures recyclable soft-drink cans. A unit of production is a case of 12 dozen cans. The following standards have been set by the production-engineering staff and the controller.

  

Direct Labor:	Direct Material:
Quantity, 0.22 hour	Quantity, 3 kilograms
Rate, $11.00 per hour	Price, $0.54 per kilogram

  

Actual material purchases amounted to 156,400 kilograms at $0.610 per kilogram. Actual costs incurred in the production of 34,000 units were as follows:

Direct labor:	$93,024 for 8,160 hours
Direct material:	$70,516 for 115,600 kilograms

Required:

1. Use the variance formulas to compute the direct-material price and quantity variances, the direct-material purchase price variance, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

Answer 1

Direct material price variance = (Standard price-actual price)actual quantity used = (0.54*115600-70516) = 8092 U

Direct material quantity variance = (Standard quantity-actual quantity)Standard price = (34000*3-115600)*.54 = 7344 U

Direct material purchase price variance = (Standard price-actual price)actual quantity purchased = (0.54-0.61)*156400 = 10948 U

Direct labor rate variance = (Standard rate-actual rate)actual hours = (11*8160-93024) = 3264 U

Direct labor efficiency variance = (Standard hour-actual hour)Standard rate = (34000*.22-8160)*11 = 7480 U

answered by: anonymous