Riggins, Inc. manufactures one product called tybos. The company uses a standard

Question

Riggins, Inc. manufactures one product called tybos. The company uses a standard cost system and sells each tybo for $8. At the start of monthly production, Riggins estimated 6,400 tybos would be produced in March. Riggins has established the following material and labor standards to produce one tybo: Standard Quantity Standard Price Direct materials 2.5 pounds $3 per pound Direct labor 0.6 hours $10 per hour During March 2012, the following activity was recorded by the company relating to the production of tybos: 1. The company produced 6,000 units during the month. 2. A total of 16,000 pounds of materials were purchased at a cost of $44,000. 3. A total of 16,000 pounds of materials were used in production. 4. 3,200 hours of labor were incurred during the month at a total wage cost of $35,200. Instructions Calculate the following variances for March for Riggins, Inc. (a) Materials price variance (b) Materials quantity variance (c) Labor price variance (d) Labor quantity variance

Explanation / Answer

Material price variance: Formula : (Price Variance) x Actual Quantity used Therefore: (3 - (44,000/16) x 16,000 = 4,000 (Favourable as we got the material at a lower price than expected) Material quantity variance: Formula : (Quantity variance) x Standard price per pound Therefore: ( (2.5 x 6,000) - 16,000) X 3 = 3,000 (Adverse as we used more material than expected) Labour price variance: Formula: (Hourly rate variance) x Actual hours taken Therefore : (10 - (35,200/3200) ) x 3,200 = 3,200 (Adverse as we end up paying more wage per hour than we expected) Labour Quantity variance: Formula : (Variance in hours) x standard hour rate ( (0.6 x 6,000) - 3,200) x 10 = 400 (Favourable as we used less hours than expected)

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