E9-5 Calculating Direct Materials and Direct Labor Variances [LO 9-3, 9-4] Cryst

Question

E9-5 Calculating Direct Materials and Direct Labor Variances [LO 9-3, 9-4] Crystal Charm Company makes handcrafted silver charms that attach to jewelry such as a necklace or bracelet. Each charm is adorned with two crystals of various colors. Standard costs follow Standard QuantityS 080 oz. $24.00 per az 4.00 $0.45 per crysta 1.50 hrs. $14.00 per hr. Standard (Rate) Unit Standero Cost Silver Crystals Direct labor S 14.40 21 During the month of January, Crystal Charm made 1,500 charms. The company used 880 ounces of silver (total cost of $21,500) and 6,050 crystals (total cost of $2,601.50), and paid for 2,400 actual direct labor hours (cost of $32,400.00). Required: 1. Cakculate Crystal Charm's direct materials variances for silver and crystals for the month of January. (Round your intermediate calculations and final answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.) Silver Direct Material Price Variance Direct Material Quantity Variance 2. Cakculate Crystal Charm's direct labor variances for the month of January. (Round your intermediate calculations and final answers to 2 decimal places.Indicate the effect of each variance by selecting "F"for favorable, "U" for unfavorable.) Direct Labor Rate Variance Direct Labor Eicieney Variance

Explanation / Answer

Solution:

1)

Silver

Crystals

Material Price Variance

$860

Unfavorable

$121

Favorable

Material Quantity Variance

$960

Favorable

$22.50

Unfavorable

Refer Working Below

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.

For Direct material - SILVER

Actual quantity of raw material purchased = 860 ounces

Actual price per ounce = $21,500 / 860 = $25 per ounce

Standard Price per pound = $24 per oz

Material Price Variance (Silver) = Actual Quantity Purchased 860 (Standard Price 24 - Actual Price 25) = $860 Unfavorable

For Direct material - CRYSTAL

Actual quantity of raw material purchased = 6050 crystal

Actual price per ounce = $2601.50 / 6050 = $0.43 per crystal

Standard Price per pound = $0.45 per crystal

Material Price Variance (CRYSTAL) = Actual Quantity Purchased 6050 (Standard Price 0.45 - Actual Price 0.43) = $121 Favorable

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

For Direct Material - SILVER

Actual Quantity Used in production = 860 oz

Standard Quantity for Actual Production = Actual Production 1500 Charms x 0.60 oz per charm needed as per standard = 900 oz

Material Quantity Variance = Standard Price 24 (Standard Quantity for Actual Production 900 – Actual Quantity USED 860)

= $960 Favorable

For Direct Material – CRYSTAL

Actual Quantity Used in production = 6050

Standard Quantity for Actual Production = Actual Production 1500 Charms x 4 Crystal per charm needed as per standard = 6000 crystals

Material Quantity Variance = Standard Price 0.45 (Standard Quantity for Actual Production 6000 – Actual Quantity USED 6050)

= $22.50 Unfavorable

2)

Labor Rate Variance

$1200 Favorable

Labor Efficiency Variance

$2,100 Unfavorable

Labor Rate/Price 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.

Actual Rate per hour = $32,400 / 2400 DLHs = $13.50 per hour

Actual Hours worked = 2400 Hours

Standard Rate = $14 per hour

Labor Rate Variance = Actual Time 2400 (Standard Rate per hour $14 – Actual Rate per hour $13.50)

= $1200 Favorable

Labor Efficiency / Usage Variance

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

Standard Hours for Actual Production = Actual Production 1500 Charms x Per Set allowed standard hour 1.5 hours

= 2250 Hours

Labor Efficiency Variance = Standard Rate $14 (Std. hours for actual production 2250 – Actual Hours 2400)

= $2,100 Unfavorable

Silver

Crystals

Material Price Variance

$860

Unfavorable

$121

Favorable

Material Quantity Variance

$960

Favorable

$22.50

Unfavorable

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