Direct Materials and Direct Labor Variances At the beginning of June, Cornerston

Question

Direct Materials and Direct Labor Variances At the beginning of June, Cornerstone Printing Company budgeted 18,000 books to be printed in June at standard direct materials and direct labor costs as follows: Direct materials $36,000 Direct labor 17,640 Total $53,640 The standard materials price is $0.50 per pound. The standard direct labor rate is $14.00 per hour. At the end of June, the actual direct materials and direct labor costs were as follows: Actual direct materials $33,000 Actual direct labor 16,200 Total $49,200 There were no direct materials price or direct labor rate variances for June. In addition, assume no changes in the direct materials inventory balances in June. Cornerstone Printing Company actually produced 16,000 units during June. Determine the direct materials quantity and direct labor time variances. Use the minus sign to enter favorable variances as negative numbers. Direct materials quantity variance: $ Direct labor time variance: $

Explanation / Answer

follow this The standard for direct labor is $8,000 / 16,000 = $0.50 per book At $10 per hour, they budget 3 minutes of direct labor per book. They actually produced 14,000 books in October. 14,000 X $0.50 = $7,000. They say that there was no direct labor rate variance, so the $7,200 - $7,000 = $200 unfavorable D/L price variance must be the result of a Direct Labor Time Difference. $200 / $10 = 20 hours. So they took 20 extra hours to complete the 14,000 books Again, the D/L Time Difference = $200 Unfavorable You don't say what you calculated for the Direct Material Quantity Variance, but it is calculated as: Standard Direct Material per unit = $24,000 / 16,000 = $1.50 per unit. Actual Cost - Standard Cost = $21,600 - (14,000 X $1.50) = $600 - again they tell you that there was no direct material price difference, so the entire difference must be from a direct material quantity difference. So the Direct Material Quantity Variance = $600 Unfavorable Total Variance = $200 + $600 = $800 Unfavorable This is verified by calculating the total standard cost per unit of ($24,000 + $8,000) / 16,000 = $2.00 per unit. $2.00 X 14,000 = $28,000 ($21,600 + $7,200) - $28,000 = $800 (which again equals the total unfavorable variance - which is made up of $200 labor time variance, and $600 material quantity variance)

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