Jack Company manufactures a single product that has a standard materials cost of
ID: 2448652 • Letter: J
Question
Jack Company manufactures a single product that has a standard materials cost of $40 (4 units of raw materials at $10 per unit) and standard direct labor cost of $18 (1 hour per unit).
Give explanations for each of the 4 variances computed above.
The following data pertain to operations for May of this year: Raw materials purchased 6,200 units costing $63,240 Raw materials used to produce 1,500 units 6,200 units of raw materials Direct labor used 1,500 hours costing $30,000 Compute the following variances (show calculations): 1. Materials price variance 2. Materials quantity variance 3. Labor rate variance 4. Labor efficiency varianceGive explanations for each of the 4 variances computed above.
Variance Calculations Variance Answer Favorable or Unfavorable Possible explanation for variance outcome 1. Direct matierials price variance AP AQ SP AQ 2. Direct materials quantity variance SP AQ SP SQ 3. Direct labor rate variance AR AH SR AH 4. Direct Labor efficiency variance SR AH SR SHExplanation / Answer
AP = 63240/6200 = $10.20
Material price variance = AQ(AP -SP)
= 6200 (10.20 - 10)
= 6200 * .20
= 1240 (U)
Since actual price is more than standard price ,it leads to unfavorable variance .
Material quantity variance= SR (AQ - SQ)
= 10 [6200 - (1500 *4 )]
= 10 [6200 - 6000]
= 10 * 200
= 2000 (U)
Since actual quantity used is more than what is actually required to produce 1500 units .That is the standard material required to produce 1500 units is less than actual material used.
AR = 30000 /1500 =$ 20 per hour
Labor rate variance = AH (AR- SR)
= 1500 (20 - 18)
= 1500 *2
= 3000 (U)
since actual rate is more than standard rate per hour ,leading to unfavorable variance.
Labor efficiency variance= SR (AH -SH)
= 18 [1500 - (1* 1500)]
= 18 [1500-1500]
=18 *0
= 0.
Since actual hours used is equal to standard hours to produce 1500 units ,there is no variance.
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