Orion Corporation has established the following standards for the prime costs of

Question

Orion Corporation has established the following standards for the prime costs of one unit of its chief product, dartboards. Standard Price or Rate $2.20 per pound $7.00 per hour Standard Quantity Standard Cost Direct material Direct labor Total $ 13.20 6.00 pounds 1.40 hour $ 23.00 During June, Orion purchased 172,000 pounds of direct material at a total cost of $397,320. The total wages for June were $290,700, 90 percent of which were for direct labor. Orion manufactured 25,000 dartboards during June, using 135,000 pounds of the direct material purchased in June and 38,250 direct-labor hours. Required Compute the following variances for June. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).) 1. Direct-material price variance 2. Direct-material quantity variance 3. Direct-material purchase price variance 4. Direct-labor rate variance 5. Direct-labor efficiency variance

Explanation / Answer

Standard Quantity (SQ)

Summary sheet

Standard Quantity (SQ)

6*25000 150000 Standard Price (SP) 2.2 Actual Quantity (AQ) 135000 Actual Price (AP) 397320/172000 2.31 Direct Material Variance = SP*AQ - AP*AQ Direct Material Variance = (2.2*150000) - (2.31*135000) 18150 unfavorable Direct Material Quantity Variance = SP*(SQ - AQ) Direct Material Quantity Variance = 2.2*(150000- 135000) 33000 Favorable Direct Material Price Variance = AQ *(SP - AP) Direct Material Price Variance = 135000*(2.2 - 2.31) -14850 unfavorable Standard Hours 1.4*25000 35000 Standard Rate 7 Actual Hours 38250 Actual Rate 290700/38250 7.6 Direct Labour Rate Variance = AH*(SR - AR) Direct Labour Rate Variance = 38250*(7-7.6) -22950 unfavorable Direct Labour Efficiency Variance = SR*(SH - AH) Direct Labour Efficiency Variance = 7.*(35000 - 38250) -22750 unfavorable

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