Question

Jay Levitt Company budgeted the following cost standards for the current year:

Direct materials (2 kg of plastic at $5 per kilogram)		$10.00
Direct labour (2 hours at $12 per hour)		24.00
Variable manufacturing overhead		11.85
Fixed manufacturing overhead		6.15
Total standard cost per unit		$52.00

Actual costs for producing 2,690 units were as follows:

Direct materials used		5,920	kg
Direct materials purchased (6,730 kg)		$32,304
Direct labour (6,950 hours)		$67,415
Variable manufacturing costs		$32,200
Fixed manufacturing costs		$17,700

1. Calculate the materials price variance for materials purchased. Favourable or unfavourable ?

2. Calculate the materials quantity variance.Favourable or unfavourable ?

3.Calculate the labour price variance. (Round answer to the nearest whole dollar, e.g. 5,275.) Favourable or unfavourable ?

4.Calculate the labour quantity variance. Favourable or unfavourable ?

Answer 1

a. Materials price variance = (Actual quantity purchased * Actual price) - (Actual quantity purchased * Standard price)

= $32,304 - (6,730 * $5)

= $1,346 Favorable

b. Materials quantity variance = (Actual quantity used * Standard price) - (Standard quantity * Standard price)

= (5,920 * $5) - (2,690 * 2 * $5)

= $2,700 Unfavorable

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

= $67,415 - (6,950 * $12)

= $15,985 Favorable

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

= (6,950 * $12) - (2,690 * 2 * $12)

= $18,840 Unfavorable