11-57B Calculate and explain direct material and direct labor variances Royal Fa

Question

11-57B Calculate and explain direct material and direct labor variances

Royal Fabric manufacturers a specialty monogrammed blanket. To follow are the cost and labor standards for this blanket:
Direct material (fabric): 2.5 yards per blanket at $10.00 per yard
Direct labor: 0.5 direct labor hours per blanket at $14.00 per hours

Actual results from last month%u2019s production of 2,000 blankets follows:
Actual cost of 4,100 yards of direct material (fabric) purchased: $39,360
Actual yards of direct material (fabric) used: 3,900
Actual wages for 1,100 direct labor hours worked: $10,800

Requirements
1. What is the standard direct material cost for one blanket?
2. What is the actually cost per yard of fabric purchased?
3. Calculate the direct material price and quantity variances.
4. What is the standard direct labor cost for one blanket?
5. What is the actual direct labor cost per hour?
6. Calculate the direct labor rate and efficiency variances.
7. Analyze each variance and speculate as to what may have caused that variance.
8. Look at all four variances together (the big picture). How might they all be related? What variance is very likely to have caused the other variances?

Explanation / Answer

1. What is the standard direct material cost for one blanket?

Standard Direct Material Cost = 2.5*10 = $25

2. What is the actually cost per yard of fabric purchased?

Actually cost per yard of fabric purchased = 39360/4100 = $9.60

3. Calculate the direct material price and quantity variances.

Direct material price variance = (10-9.60)*4100 = $1640 Favorable

Direct material quantity variances = (2.5*2000-3900)*10 = $11000 Favorable

4. What is the standard direct labor cost for one blanket?

Standard direct labor cost for one blanket= 0.5*14 = $7

5. What is the actual direct labor cost per hour?

Actual direct labor cost per hour= 10800/1100 = $9.82

6. Calculate the direct labor rate and efficiency variances.

Direct labor rate variances = (14*1100-10800) = $4600 Favorable

Direct labor efficiency variances = (0.5*2000 - 1100)*14 = $1400 Unfavorable

7. Analyze each variance and speculate as to what may have caused that variance.

Direct material Price variance is favorable which will reduce the cost of blanket and it will increase the profit .

Direct material Qty variance is favorable , it is also reduce the cost of blanket and it will increase the profit as well .

Direct Labor rate variance is favorable due to reduce in wage rate per hour as per expectation so it will decrease the cost of blanket and increase profit in this also

Direct labor efficiency variances is unfavorable which means the the work efficiency of labor is decrease from standard , so it will lead to increase cost and profit will be reduced

8. Look at all four variances together (the big picture). How might they all be related? What variance is very likely to have caused the other variances?

The three variance are favorable and one is unfavorable , in overall it will be favorable which will reduce cost and increase profit, Direct material Qty variance is likely to have caused the other variance

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