Question

Vesuvius Plastic Company manufactures plastic buckets. A unit of production is a box of 4 buckets....

Vesuvius Plastic Company manufactures plastic buckets. A unit of production is a box of 4 buckets. The following standards have been set by the Production engineering staff and the factory accountant:

Direct material                                             Direct labour

Quantity: 4 kilogram                                    Quantity: 0.25 hours

Price: $0.80 per kilogram                            Rate: $20 per hour

Actual material purchases amounted to 240,000 kilograms at $0.81 per kilogram. Actual costs incurred in the production of 50,000 units were as follows:

Direct material                                             $170,100 for 210,000 kilograms

Direct labour                                                 $273,000 for 13,000 hours

Required

Use the variance formulas to calculate the direct material price and quantity variances and the direct labour rate and efficiency (quantity) variances. Indicate whether each variance is favorable or unfavorable.

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Answer #1
: Computation of Material Price & Usage Variance
Material Price variance
(SR-AR) AQ Purchased
($0.80-$0.81)X240000 2400 UnFavourable
Material usage variance
(SQ-AQ) SR 8000 Unfavourable
(4 KGX50000-210000)X$0.80
: Computation of Labour Price & Effieincy Variance
Direct labor rate variance
(SR-AR) AHour 13000 Unfavourable
($20-($273000/13000))X13000
Direct labor efficiency variance 10000 Unfavourable
Std rate*(Std hrs allowed-Actual Hour)
((0.25X50000)-13000)X$20
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