Sonne Company produces a perfume called Whim. The direct materials and direct la

Question

Sonne Company produces a perfume called Whim. The direct materials and direct labor standards for one bottle of Whim are given below: During the most recent month, the following activity was recorded: a.Twenty thousand ounces of material were purchased at a cost of $2.40 per ounce. b. All of the material was used to produce 2,500 bottles of Whim. c. Nine hundred hours of direct labor time were recorded at a total labor cost of $10,800. Required: 1. Compute the direct materials price and quantity variances for the month. Direct materials price variance Direct materials quantity variances 2. Compute the direct labor rate and efficiency variances for the month. Direct labor rate variance Direct labor efficiency variances

Explanation / Answer

Solution:

1)

Direct Material Price Variance arises due to difference in actual material purchase price from standard material price.

In this variance, the actual quantity means the actual quantity of material PURCHASED. If the question is silent about the total material quantity purchased, it is taken as equal to material consumed.

Direct Material Price Variance = Actual Quantity Purchased (Standard Price - Actual Price)

Direct Material Price Variance = 20,000 ($2.50 - $2.40) = $2,000 F

Direct Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity)

Here actual quantity means actual quantity of material USED.

Standard Quantity for Actual Production = Actual Production x Standard Quantity needs per bottles = 2,500 bottles x 7.2 ounces per bottle = 18,000 ounces

Direct Material Quantity Variance = $2.50 (18,000 – 20,000) = $5,000 U

2)

Direct Labour Rate Variance = Actual Time (Standard Rate per hour - Actual Rate per hour) or (Actual Time x Standard Rate per hour) – (Actual Time x Actual Rate per hour)

Direct Labour Rate Variance = (900 x $10) – $10,800 = $9,000 - $10,800 = $1,800 U

Direct labour efficiency variance = Standard Rate (Standard hours for actual output – Actual Hours)

Standard Hours for actual output = 0.4 hours x 2,500 bottles = 1,000 Hours

Direct labour efficiency variance = $10 (1,000 – 900) = $1,000 F

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