Question

Basil Tooling uses a standard cost system to account for the costs of its one product. Standards are 4.0 sheets of ½ inch steel at $110 per sheet and 14.1 hours of labor at a standard wage rate of $13. During July, Basil Tooling produced 620 units. Materials purchased and used totaled 2,560 sheets at a total cost of $270,100. Payroll totaled $113,390 for 8,820 hours worked.

a. Calculate the direct materials price variance. (Do not round your intermediate calculations. Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i.e., zero variance).)

b. Calculate the direct materials quantity variance. (Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i.e., zero variance).)

c. Calculate the direct labor rate variance. (Do not round your intermediate calculations. Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i.e., zero variance).)

d. Calculate the direct labor efficiency variance. (Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i.e., zero variance).)

Answer 1

a.

Direct materials price variance = (Actual quantity * Actual price) - (Actual quantity * Standard price)

= $270,100 - (2,560 * $110)

= $270,100 - $281,600

= $11,500 Favorable

b.

Direct materials quantity variance = (Actual quantity * Standard price) - (Standard quantity * Standard price)

= (2,560 * $110) - [(620 * 4) * $110]

= $281,600 - $272,800

= $8,800 Unfavorable

c.

Direct labor rate variance = (Actual hours * Actual rate) - (Actual hours * Standard rate)

= $113,390 - (8,820 * $13)

= $113,390 - $114,660

= $1,270 Favorable

d.

Direct labor efficiency variance = (Actual hours * Standard rate) - (Standard hours * Standard rate)

=(8,820 * $13) - [(620 * 14.1) * $13]

= $114,660 - $113,646

= $1,014 Unfavorable