Camping Supply Company has developed a new camping lamp that runs on solar power

Question

Camping Supply Company has developed a new camping lamp that runs on solar power. The solar cells charge in the sun all day and then the lamp is ready to run when the sun goes down. The company has a standard costing system to help control costs and has established the following standards related to the new camping lamp:

Direct materials: 3 small solar cells per lamp at $0.60 per cell

Direct labour: 0.75 hours per lamp at $12 per hour

    During March, the company produced 4,000 camping lights. Production data for March are as follows:

Direct materials: 20,000 small solar were purchased at a cost of $0.65 per cell; 6,000 of these             were still in inventory at the end of the month. (there was no opening inventory.)

Direct labour: 3,100 direct labour-hours were worked at a cost of $35,000.

Compute the direct materials price and quantity variances for March. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

Compute the direct labour rate and efficiency variances for March. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

Camping Supply Company has developed a new camping lamp that runs on solar power. The solar cells charge in the sun all day and then the lamp is ready to run when the sun goes down. The company has a standard costing system to help control costs and has established the following standards related to the new camping lamp:

Explanation / Answer

Answer 1-a.

Actual Quantity purchased = 20,000
Actual price = $0.65 per cell
Standard Price = $0.60 per cell

Direct Materials Price Variance = Actual Quantity Purchased * (Actual Price - Standard Price)
Direct Materials Price Variance = 20,000 * ($0.65 - $0.60)
Direct Materials Price Variance = $1,000 Unfavorable

Standard Price = $0.60 per cell
Actual Quantity used = Actual quantity purchased - Ending inventory
Actual Quantity used = 20,000 - 6,000
Actual Quantity used = 14,000
Standard Quantity = 3 * 4,000 = 12,000

Direct Materials Quantity Variance = Standard Price * (Actual Quantity Used - Standard Quantity)
Direct Materials Quantity Variance = $0.60 * (14,000 - 12,000)
Direct Materials Quantity Variance = $1,200 Unfavorable

Answer 1-b.

Actual hours = 3,100
Actual Direct labor cost = $35,000
Standard Rate = $12 per hour

Direct Labor Rate Variance = Actual Direct labor cost - Actual Hours * Standard Rate
Direct Labor Rate Variance = $35,000 - 3,100 * $12
Direct Labor Rate Variance = $2,200 Favorable

Standard Rate = $12.00 per hour
Standard hours = 0.75 * 4,000
Standard hours = 3,000
Actual hours = 3,100

Direct Labor Efficiency Variance = Standard Rate * (Actual hours - Standard hours)
Direct Labor Efficiency Variance = $12.00 * (3,100 - 3,000)
Direct Labor Efficiency Variance = $1,200 Unfavorable

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