During May, Joliet Fabrics Corporation manufactured 540 units of a special multi

Question

During May, Joliet Fabrics Corporation manufactured 540 units of a special multilayer fabric with the trade name Stylex. The following information from the Stylex production department also pertains to May. Direct material1 purchased: 18,400 yards at $1.42 per yard $26,128 Direct material used: 9,900 yards at ?1.42 per yard Direct labor 2,500 hours at $9.19 per hour 14,058 22,975 The standard prime costs for one unit of Stylex are as follows: Direct material: 20 yards at $1.39 per yard$27.80 Direct labor: 4 hours at $8.00 per hour 32.00 Total standard prime cost per unit of output $59.80 Required: Compute the following variances for the month of May. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "O" for no effect (i.e., zero variance) 1. Direct-material price variance 2. Direct-material quantity variance Direct-material purchase price variance 4. Direct-labor rate variance 5. Direct-labor efficiency variance

Explanation / Answer

Part 1 -- Material Price Variance

Material Price Variance is the variance arises in the material cost due to difference in actual material purchase price from standard material price. Mathematically, it is calculated as below:

Material Price Variance = Actual Quantity (Standard Price – Actual Price)

Note --- Here actual quantity means actual quantity of material PURCHASED. If the question does not provide the information about material purchase, it is taken as equal to material consumed.

Direct Material Price Variance

Actual Price (AP) (282,000 / 12,000)

$1.420

per yard

Standard Price (SP)

$1.390

per yard

Variance or Difference in Price

$0.030

per yard

x Actual Quantity PURCHASED

18400

ounce

Material Price Variance

$552

Unfavorable

Unfavorable because actual cost paid for material purchase is higher than anticipated.

Part 2 --- Material Quantity/Efficiency/Usage Variance

Material Efficiency (Usage) Variance measures variance in material cost due to usage/consumption of materials. It is calculated as below:

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

Note --- Here actual quantity means actual quantity of material CONSUMED/USED

Direct Material Quantity Variance

Standard Quantity Allowed for actual production:

Actual Production/Activity

540

Units

x Allowed Standard Quantity Per Unit

20

Yards

Total Standard Quantity Allowed for actual production (SQAP)

10800

Yards

Actual Quantity USED (AQU)

9900

Yards

Variance or Difference in Quantity (AQU - SQAP)

900

ounce

x Standard Price (SP)

$1.39

per yard

Material Quantity Variance

$1,251

Favorable

Favorable because actual quantity used is less than standard quantity at standard cost

Part 3 – Direct material purchase price variance = Material Price Variance $552 U + Material Quantity Variance $1251 F

= $699 Favorable

Part 4 – Labor Rate Variance

Labor Price Variance – It arises due to difference in actual rate paid from standard rate. It is calculated as below:

Labor Price Variance = Actual Time (Standard Rate per hour – Actual Rate per hour)

Here, actual time means time for which wage has been paid.

Labor Rate Variance

Actual Hourly Rate (AHR)

$9.19

Per Hour

Standard Hourly Rate (SHR)

$8.00

Per Hour

Variance or Difference in Rate

$1.19

Per Hour

x Actual Labor Hours worked

2500

Hours

Labor Rate Variance

$2,975

Unfavorable

Unfavorable Labor Rate Variance because actual hourly rate paid is higher than standard hourly rate.

Part 5 -- Labor Quantity Variance

Labor Efficiency Variance – It arises due to variation in the working hours from the set standard.

Labor Quantity / Efficiency Variance

Standard Hours Allowed for actual production:

Actual Production

540

Units

x Allowed Standard Hours Per Unit

4

hours

Total Standard Hours Allowed for actual production (SHAP)

2160

hours

Actual Labor Hours Worked (AH)

2500

hours

Variance or Difference in Hours (AH - SHAP)

340

hours

x Standard Hourly Rate (SHR)

$8.00

per hour

Labor Efficiency Variance

$2,720

Unfavorable

Unfavorable Labor Efficiency Variance because the Actual Hours Worked is higher than the allowed standard hours at standard rate

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Direct Material Price Variance

Actual Price (AP) (282,000 / 12,000)

$1.420

per yard

Standard Price (SP)

$1.390

per yard

Variance or Difference in Price

$0.030

per yard

x Actual Quantity PURCHASED

18400

ounce

Material Price Variance

$552

Unfavorable

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