Requirement: - Compute the cost and efficiency variances for direct materials an

Question

Requirement:

- Compute the cost and efficiency variances for direct materials and direct labor

27A Computing standard cost variances and reporting to management Hear Smart manufactures headphone cases. During September 2018, the company produced and sold 105,000 cases and recorded the following cost data: Standard Cost Information Quantity Cost Direct Materials 2 parts $ 0.15 per part Direct Labor 0.02 hours 8.00 per hour Variable Manufacturing overhead 0.02 hours 10.00 per hour Fixed Manufacturing Overhead ($28,500 for static budget volume of 95,000 units and 1,900 hours, or $15 per hour) Actual Cost Information Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead 13,040 (209,000 parts @ $0.20 per part) $ 41,800 (1,600 hours @ $8.15 per hour) 9,000 26,000

Explanation / Answer

(1) (a) Direct material cost variance = Standard cost of material - Actual cost of material

= 31500 - 41800 = 10300 Unfavorable

Standard cost = 105,000 cases * 2 parts * $ 0.15 per part. = $ 31500

(b) Direct material efficiency variance = Standard price ( Standard quantity - Actual quantity)

= 0.15 ( 210,000 - 209000) = 150 Favourable

Direct Labour variances

A) Cost variance = Standard Labour cost - Actual Labor cost

= 16800 - 13040 = 3760 Favorable

Standard labor cost = 105000 * 0.02 hours * 8 per hour = 16800

B) Direct labour Efficiency variance = Standard rate ( Standard Hours - Actual hours)

= 8 ( 2100 - 1600) = 4000 Favourable

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