Diekow Productions manufactured and sold 1,000 products at $11,000 each during t

Question

Diekow Productions manufactured and sold 1,000 products at $11,000 each during the past year. At the beginning of the year, production had been set at 1,200 products; direct materials standards had been set at 100 pounds of direct materials at $2 per pound for each product produced. During the year, the company purchased and used 98,000 pounds of direct materials; the cost was $2.04 per pound.

At the beginning of last year, Diekow Productions set direct labor standards of 20 hours at $15 per hour for each product produced. During the year, 20,500 direct labor hours were actually worked at an average cost of $16 per hour.

Calculate Diekow Production's direct labor rate and efficiency variances for the year.

Direct materials price variance: $__________ (Favorable / Unfavorable / No effect)

Direct materials efficiency variance: $__________ (Favorable / Unfavorable / No effect)

Explanation / Answer

standard hours = 1,000*20 = 20,000 actual hours = 20,500 standard rate = $15 actual rate = $16 Labor price variance = AH(AR-SR) = 20,500(16 - 15) = 20,500, which is 20,500 unfavorable Labor efficiency variance = SR(AH-SH) = 15*(20,500 - 20,000) = 7500 which is 7,500 unfavorable

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