Standard costs and actual costs incurred for the manufacture of 8,000 units of p

Question

Standard costs and actual costs incurred for the manufacture of 8,000 units of product were as follows:

Standard Costs Actual Costs
Direct materials:
8,000 lbs. @ $30.00 7,750 lbs. @ $30.20
Direct labor: 10,000 hours @ $36.00 10,250 hours @ $38.00
Factory overhead:
Rates per direct labor hour,
based on 100% capacity of
16,000 labor hours:
Variable cost $15.00 $189,400 total variable cost
Fixed cost $10.00 $100,000 total fixed cost

Determine (a) the quantity variance, price variance, and total direct materials cost variance; (b) the time variance, rate variance, and total direct labor cost variance; and (c) the volume variance, controllable variance, and total factory overhead cost variance.

Explanation / Answer

(a) the quantity variance, price variance, and total direct materials cost variance

Materials quantity variance = Standard Price X (Actual quantity used - Standard quantity allowed)
= $30.00 x (7,750 lbs. - 8,000 lbs)
= $30.00 X 250 lbs = $7,500 Favorabale

Materials Price Variance = Actual quantity purchased × ( Actual price - Standard price)
= 7,750 lbs x ($30.20 - $30.00)
= 7,750 lbs x $0.20 = $1,550 Unfavorable

Total Direct materials cost variance = Standard cost of output - Actual cost of output
= (8,000 lbs @ $30.00) - (7,750 @ $30.20)
= $240,000 - $234,050 = $5,950 Favorable

This can be checked by adding quantity and price variance as follows:
$7,500 favorable - $1,550 Unfavorable = $5,950 Favorable

(b) the time variance, rate variance, and total direct labor cost variance

Direct labor time variance = Standard Rate X (Actual Hours Worked - Standard Hours Allowed)
= $36.00 x (10,250 hours - 10,000 hours)
= $36.00 x 250 = $9,000 Unfavorable

Labor rate variance = Actual hours worked × (Actual rate - Standard rate)
= 10,250 hours x ($38.00 - $36.00)
= 10,250 x $2.00 = $20,500 Unfavorable

Total Direct Labor Cost Variance = Standard Cost - Actual cost
= (10,000 hours @ $36.00 - 10,250 hours @ $38.00)
= $360,000 - $389,500 = $29,500 Unfavorable

This can be checked by adding time and rate variance as follwos :
= $9,000 Unfavorable + $20,500 Unfavorable
= $29,500 Unfavorable

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