Question

The accountants for ABC, Inc. have developed the following information regarding the standard cost and actual cost of a product manufactured in March: Direct materials: Standard: 84,000 oz @ $0.20 per ounce Actual: 91,000 oz @ $0.22 per ounce Direct labor: Standard: 4,200 hours @ $12 per hour Actual: 3,500 hours @ $13 per hour Compute the following cost variances for ABC, Inc. Indicate whether each variance is favorable (F) or unfavorable (U). 1. Materials price variance: $__________ 2. Materials quantity variance: $__________ 3. Total materials variance $_______________ 4 Labor rate variance: $__________ 5 Labor efficiency variance: $__________

Answer 1

1.

Materials price variance = (Actual quantity * Actual price) - (Actual quantity * Standard price)

= (91,000 * $0.22) - (91,000 * $0.20)

= $20,020 - $18,200

= $1,820 Unfavourable

2.

Materials quantity variance = (Actual quantity * Standard price) - (Standard quantity * Standard price)

= (91,000 * $0.20) - (84,000 * $0.20)

= $18,200 - $16,800

= $1,400 Unfavourable

3.

Total materials varaince = Materials price variance + Materials quantity variance

= $1,820 Unfavourable + $1,400 Unfavourable

= $3,220 Unfavourable

4.

Labour rate variance = (Actual hours * Actual rate) - (Actual hours * Standard rate)

= (3,500 * $13) - (3,500 * $12)

= $45,500 - $42,000

= $3,500 Unfavourable

5.

Labour efficiency variance = (Actual hours * Standard rate) - (Standard hours * Standard rate)

= (3,500 * $12) - (4,200 * $12)

= $42,000 - $50,400

= 8,400 Favourable