Question

MitchCon Industries, Inc. (MCI), uses standard costs for direct material and direct labor for planning and control purposes. For 2019, MCI estimated the following standard costs for one of their major products, the 10-gallon plastic container. Budgeted quantity Budgeted price Direct materials 0.12 pounds $40 per pound Direct labor 0.04 hours $20 per hour During June 2019, MCI produced and sold 15,000 containers using 1,700 pounds of direct materials at an average cost per pound of $35 and 630 direct manufacturing labor-hours at an average wage of $21.00 per hour. There was no direct material inventory at the beginning or end of June. 1.

Calculate the direct material price and efficiency variances for June 2019 2.

Calculate the direct manufacturing labor price and efficiency variances for June 2019

Answer 1

1.Material Price & Efficiency Variance:

	Formula		=	Variance
Direct Material Price Variance	( AC - SC ) *AQ	( $35 - $40) *1700 Pound	=	$8500	Favorable
Direct Material Efficiency Variance	( AQ - SQ) * SR	( 1700 - 1800) *$40	=	$4000	Favorable

( SQ = 0.12 ×15000 container= 1800 pound

2. Labor Price & Efficiency Variance:

	Formula		=	Variance
Direct Labor Price Variance	( AC- SC) *AH	( $21- 20)×$ 630	=	$630	Unfavorable
Direct Labor Efficiency Variance	( AH- SH ) * SC	(630 - 600) ×20	=	$600	Unfvorable

( SH = 15000 Container * 0.04 hour = 600 hour)

Note:

1) AH = Actual Hour

2) SH = Standard Hour

3) AC = Actual Cost

4) SC = Standard Cost

5) AQ = Actual Quantity

6) SQ = Standard Quantity