Direct Materials: 8 diodes per toy at $0.30 per diode Direct labor: 1.2 hours pe
ID: 2446709 • Letter: D
Question
Direct Materials: 8 diodes per toy at $0.30 per diode Direct labor: 1.2 hours per toy at $7.00 per hour During Aug. the company produced 5,000 toys. Production forAug: Direct materials: 70,000 diodes were purchased at cost of$0.28 per diode. 20,000 of these diodes were still in inventory atend of the month Direct labor: 6,400 direct labor hours were worked at a costof $48,000. a) What is the labor efficiency variance. b) Prepare a brief explanation of the possible cuases of eachvariance ( direct materals price and quantity variances, and directlabor rate and efficiency varainces) Direct Materials: 8 diodes per toy at $0.30 per diode Direct labor: 1.2 hours per toy at $7.00 per hour During Aug. the company produced 5,000 toys. Production forAug: Direct materials: 70,000 diodes were purchased at cost of$0.28 per diode. 20,000 of these diodes were still in inventory atend of the month Direct labor: 6,400 direct labor hours were worked at a costof $48,000. a) What is the labor efficiency variance. b) Prepare a brief explanation of the possible cuases of eachvariance ( direct materals price and quantity variances, and directlabor rate and efficiency varainces)Explanation / Answer
A.
Labor efficiency variance
=
Standard rate per hour X (Standard hours - Actual hours)
=
$7 X (6000 - 6500)
=
$3500 (U)
Note: 1.2 hours X 5000 Toys = 6000 hours
B.
VARIANCES RELATING TO DIRECTMATERIALS: The total variance for directmaterials is found by comparing actual direct material cost tostandard direct material cost. The top portion of theillustration at right demonstrates this point. However, theoverall materials variance could result from any combination ofhaving procured goods at prices equal to, above, or below standardcost, and using more or less direct materials thananticipated. Proper variance analysis requires that the TotalDirect Materials Variance be separated into the:
Materials Price Variance: Avariance that reveals the difference between the standard price formaterials purchased and the amount actually paid for thosematerials [(standard price - actual price) X actualquantity].
Materials Quantity Variance: Avariance that compares the standard quantity of materials thatshould have been used to the actual quantity of materialsused. The quantity variation is measured at the standardprice per unit [(standard quantity - actual quantity) X standardprice].
VARIANCES RELATING TO DIRECTLABOR: The intrinsic logic for direct laborvariances is very similar to that of direct material. Thetotal variance for direct labor is found by comparing actual directlabor cost to standard direct labor cost. The overall laborvariance could result from any combination of having paid laborersat rates equal to, above, or below standard rates, and using moreor less direct labor hours than anticipated. In thisillustration, AH is the actual hours worked, AR is the actual laborrate per hour, SR is the standard labor rate per hour, and SH isthe standard hours for the output achieved.
The Total Direct Labor Variance can be separated into the:
Labor EfficiencyVariance: A variance that compares thestandard hours of direct labor that should have been used to theactual hours worked. The efficiency variance is measured atthe standard rate per hour [(standard hours - actual hours) Xstandard rate
A.
Labor efficiency variance
=
Standard rate per hour X (Standard hours - Actual hours)
=
$7 X (6000 - 6500)
=
$3500 (U)
Note: 1.2 hours X 5000 Toys = 6000 hours
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.