Lisle Manufactoring has developed the following standards for one of its product

Question

Lisle Manufactoring has developed the following standards for one of its products:

STANDARD VARIABLE COST CARD ONE UNIT OF PRODUCT

The company records materials price variances at the time of purchase.

During August Lisle purchased 16,000 yeards of material costing $169,600 and used 12,500 yards in its manufactoring process. There was no material inventory at Aug 1. Lisle recorded a total of 4,600 direct labor hours worked for a total payroll of 72,680. Lisle manufactured 1,200 units in Aug.

Required

a. Calculate the materials price variance and indicate whether it is favorable or unfavorable.

b. Calculate the materials usage variance and indicate whether it is favorable or unfavorable.

c. Calculate the labor rate variance and indicate whether it is favorable or unfavorable.

d. Calculate the labor efficiency variance and indicate whether it is favorable or unfavorable.

Direct Materials $ 10 yards x $10 per yard $100.00 Direct Labor 4 hours x $16 per hour $64.00 Variable overhead 4 hours x $10 per hour $40.00 Total standards variable cost per unit $204.00

Explanation / Answer

a. Actual rate = 169,600 / 16,000 = $10.6

Material rate variance = (Actual rate - Standard rate) * Actual quantity utilised

= ( $10.6 - 10) * 12500 = 7,500 U

b. Material Usage variance = ( Actual quantity - Standard quantity for actual production) * standard rate

= ( 12,500 - 1200 * 10 ) * 10 = 5000 U

c. Actual rate = 72,680 / 4600 = $15.6 per hour

Labor rate variance = (Standard rate - Actual rate ) * Actual hours applied

= ( 16 - 15.6 ) * 4,600 = $1,840 F

d. Labor Effeciency variance = ( Standard hours for actual production - Actual hours) * standard rate

= (1,200 * 4 - 4,600 ) * $16 = $3,200 F

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