The Donald Company developed the following standards for the manufacture of its

Question

The Donald Company developed the following standards for the manufacture of its product:

Each unit should have 2 ½ pounds of direct materials purchased at $4 per pound.

Each unit should be produced in 1½ hours at a direct labor cost of $16 per hour.

Actual production was 6,000 units using 12,400 pounds of direct materials at a total cost of $60,800 and required 8,200 direct labor hours at a total cost of $110,400.

Use a positive number to indicate a favorable variance or a negative number to indicate an unfavorable variance for the following 2 questions.

What is the “cost” variance for direct materials?

What is the “quantity” variance for direct labor?

Explanation / Answer

Material cost variance =(SQ*SR) -Actual cost

                                 = [(6000*2.5) * 4 ] - 60800

                                 = (15000*4 )-60800

                                = 60000-60800

                                 = -800 (U)

2) Quantity variance=   (SR * SH) - (SR * Actual hours)

                              = [16 * (6000*1.5) - (16 * 8200)

                              = [16* 9000)- (16*8200)

                              = 144000 - 131200

                              = 12800(F)

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