Required: a] compute the following 1. Standard cost per dress for direct matiera
ID: 2416188 • Letter: R
Question
Required: a] compute the following 1. Standard cost per dress for direct matierals and direct labor 2. Direct material price and quantity variances 3. Total direct materials cost variance 4. Direct labor rate and efficiency variances 5. Total direct labor cost variance
b] provide the likely reasons for variances determined in a]
Standard: Wage rate per hour Labour hour per dress Materials per dress Materials price per metre 2.90 $10.80 12 mirn 3.8 metres Actua1: Materials price per metre Materials used during the week $2.75 12,100 metres Number of dresses produced during the week 3,250 $11.00 700 Wage rate per hour Hours worked per week
Explanation / Answer
An overall hike in the market price of materials
Purchase of materials of higher quality than the standard (this will be reflected in favorable material usage variance)
Increase in bargaining power of suppliers
Loss of purchase discounts due to smaller order sizes
Inefficient buying by the procurement staff
Reasons for a favorable material usage variance may include:
Purchase of materials of higher quality than the standard (this will be reflected in adverse material price variance)
Greater use of skilled labor
Training and development of workforce to improve productivity
Use and improvement of automated manufacturing tools and processes
An adverse labor rate variance indicates higher labor costs incurred during a period compared with the standard.
Causes for adverse labor rate variance may include:
Increase in the national minimum wage rate
Hiring of more skilled labor than anticipated in the standard (this should be reflected in a favourable labour efficiency varience.
Inefficient hiring by the HR department
Effective negotiations by labor unions
Reasons for adverse labor efficiency variances may include:
Hiring of lower skilled labor than the standard (this should be reflected in a favourable Labour rate varience
Lower learning curve achieved during the period than anticipated in the standard
Decrease in staff morale and motivation
Idle time incurred during a period caused by disruption or stoppage of activities (idle time variance may be calculated separately from the labor efficiency variance to reflect the underlying increase or decrease in labor productivity during a period)
Causes for adverse labor rate variance may include:
Increase in the national minimum wage rate
Hiring of more skilled labor than anticipated in the standard (this should be reflected in a favourable labour efficiency Varience
Inefficient hiring by the HR department Effective negotiations by labor unions
a) 1) Standard Direct Material Cost per dress = Material per Dress* Material per Meter = 3.8 meters * $2.90/meter = $ 9.57 Standard Direct Labour Cost per dress = labour Hrs per Dress* Labour per Hr= 12 mins * 10.80/hr = 12 mins* 10.80/60mins = $ 2.16 2) Direct Material price varience = ( Actual Qty * Standard Price)- (Actual Qty * actual Price) = (12100*2.75)-(12100*2.90)= 1815 Favourable Direct Material Qty varience = ( Standard Qty for actual output * Standard Price)-(Actual Qty * Standard Price) - = (3250*3.8*2.90)-(12100*2.90)= 725 ( favourable) 3) Total Direct Material Cost varience = (Standard Qty * Standard Price) - ( Actual Qty * Actual Price) = (3250*3.8*2.9)-(12100*2.75)= 2540 (Favouable) 4) Direct Labour rate Varience = (Standard rate * Actual Hours)-( actual Rate * Actual hours) =( 10.8*700)-(11*700) = 140 ( adverse) Direct Labour Efficiency Varience = (Standard rate * Standar Hours)-( Standard Rate * Actual hours) =( 10.8*3250*12/60)-(10.8*700) = 540 ( adverse) 5) Direct Labour rate Varience = (Standard rate * Standard Hrs)-( actual Rate * Actual hours) =( 10.8*3250*12/60)-(11*700) = 680 ( adverse)b) Reasons for adverse material price variance include:
An overall hike in the market price of materials
Purchase of materials of higher quality than the standard (this will be reflected in favorable material usage variance)
Increase in bargaining power of suppliers
Loss of purchase discounts due to smaller order sizes
Inefficient buying by the procurement staff
Reasons for a favorable material usage variance may include:
Purchase of materials of higher quality than the standard (this will be reflected in adverse material price variance)
Greater use of skilled labor
Training and development of workforce to improve productivity
Use and improvement of automated manufacturing tools and processes
An adverse labor rate variance indicates higher labor costs incurred during a period compared with the standard.
Causes for adverse labor rate variance may include:
Increase in the national minimum wage rate
Hiring of more skilled labor than anticipated in the standard (this should be reflected in a favourable labour efficiency varience.
Inefficient hiring by the HR department
Effective negotiations by labor unions
Reasons for adverse labor efficiency variances may include:
Hiring of lower skilled labor than the standard (this should be reflected in a favourable Labour rate varience
Lower learning curve achieved during the period than anticipated in the standard
Decrease in staff morale and motivation
Idle time incurred during a period caused by disruption or stoppage of activities (idle time variance may be calculated separately from the labor efficiency variance to reflect the underlying increase or decrease in labor productivity during a period)
Causes for adverse labor rate variance may include:
Increase in the national minimum wage rate
Hiring of more skilled labor than anticipated in the standard (this should be reflected in a favourable labour efficiency Varience
Inefficient hiring by the HR department Effective negotiations by labor unions
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