You have been provided the following information for each unit of your product:

Question

You have been provided the following information for each unit of your product:
  

      Standard Quantity    
or Hours allowed

    Standard Price       
or Labor Rate charged

Direct materials

4.3 ounces

$6.00 per ounce

Direct labor

0.7 hours

$21.00 per hour

The company reported the following results concerning this product in May.
  

Actual output

3,500

units

Raw materials used in production

14,710

ounces

Actual direct labor-hours

2,270

hours

Purchases of raw materials

16,700

ounces

Actual price of raw materials

$5.80

per ounce

Actual direct labor rate

$21.90

per hour

The materials price variance is recognized when materials are purchased.  
a. Compute the materials quantity variance.
b. Compute the materials price variance.
c. Compute the labor efficiency variance.
d. Compute the labor rate variance.

      Standard Quantity    
or Hours allowed

    Standard Price       
or Labor Rate charged

Direct materials

4.3 ounces

$6.00 per ounce

Direct labor

0.7 hours

$21.00 per hour

Explanation / Answer

a) Material quantity variance = (3500*4.3-14710)6 = 2040 Favorable

b) Material price variance = (6-5.80)*16700 = 3340 Favorable

c) Labour efficiency variance = (3500*.7-2270)*21 =3780 Favorable

d) Labour rate variance = (21-21.90)*2270 = 2043 Unfavorable

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