Question

Maki, Inc. manufactures a product that has the following standard costs:

Direct materials: 50 yards at $2.60 per yard		$	130
Direct labor: 8 hours at $19.00 per hour			152
Total		$	282

The following information pertains to July:
Direct material purchased: 55,100 yards at $2.65 per yard, or $146,015
Direct material used: 51,300 yards
Direct labor: 7,100 hours at $19.5 per hour, or $138,450
Actual completed production: 1,090 units
Use the information to compute the following variances:

Required:
Compute the following variances for the month of July. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

Direct-material price variance = ?

Direct-material quantity variance = ?

Direct-labor rate variance = ?

Direct-labor efficiency variance = ?

Answer 1

Material variances

Standard price is $2.60

Actual quantity is 51,300 yards

Standard quantity = 50 × 1,090 = 54,500

Actual price is $2.65

Material quantity variance = (standard quantity - actual quantity) × standard price

Material quantity variance = (54,500 - 51,300) × 2.60 = $8,320 favorable

Material price variance = (standard price - actual price) × actual quantity

Material price variance = (2.60 - 2.65) × 51,300 = $2,565 Unfavorable

Labour variances

Standard hours = 8 × 1,090 = 8,720 hours

Standard rate is $19

Actual rate is $19.5

Actual hours is 7,100 hours

Labour efficiency variance = (standard hours - actual hours) × standard rate

Labour efficiency variance of Maki Inc = (8,720 - 7,100) × 19 = $30,780 Favorable

Labour rate variance of Maki Inc = (standard rate - actual rate) × actual hours

Maki Inc labour rate variance = (19 - 19.5) × 7,100 = $3,550 Unfavorable

51,300 yard is Maki Inc direct material used