Question

Decadent Halloween Candy Co. (DHC) produces specialty Halloween treats in large batches. One batch of treats has the following standard costs and amounts:

Standard kilograms of sugar 100 Standard cost per kilogram of sugar $1.90 Standard direct labour hours 2 Standard direct labour cost per hour $18.00 DHC produced 400 batches of treats in October. Actual input costs and per batch usage levels were as follows: Actual kilograms of sugar purchases and used 102 Actual cost per kilogram of sugar $2.10 Actual direct labour hours 1.8 Actual direct labour cost per hour $17.50

DHC produced 400 batches of treats in October. Actual input costs and per batch usage levels were as follows: Actual kilograms of sugar purchases and used 102 Actual cost per kilogram of sugar $2.10 Actual direct labour hours 1.8 Actual direct labour cost per hour $17.50

Required: Calculate the direct materials price and quantity variances, and the direct labour rate and efficiency variances. For each variance, provide a reasonable explanation of what may have caused the variance to occur, and why it would result in a favourable or unfavourable variance.

Answer 1

direct materials price variance= (standard price - actual price )actual quantity

( 1.9 -2.10) *102 = 20.4 U

• Here DHC company purchased raw materials with a high price compared to the standard set by them.this results in an unfavourable variance

material  quantity variances,=( standard quantity - actual quantity )standard price

=(100-102)1.9 =3.8U

Here the unfavourable variance occured because the DHC used more quantity to produce the candy compared to the budget

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

=(18-17.50)*1.8= 0.9F

here the company paid less wages to their employees compared to the budget

labour efficiency variance =( standard hour - actual hour )*standard rate

=(2-1.8)*18 = 3.6F

The labour efficiency variance is favourable because the employees took only less hours compared to the standard