Answered: Calculation of materials and labor…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Topic Video

Question

Calculation of materials and labor variances

Fritz Corp. manufactures and sells a single product. The company uses a standard cost system. The standard cost per unit of product follows:

The charges to the manufacturing department for November, when 5,000 units were produced, follow:

The Purchasing department normally buys about the same quantity as is used in production during a month. In November, 5,500 lb were purchased at a price of $2.90 per pound.

Required:

Calculate the following from standard costs for the data given, using the formulas on pages 421–422 and 424:

1. Materials quantity variance.

2. Materials purchase price variance (at time of purchase).

3. Labor efficiency variance.

4. Labor rate variance.

**Calculation of Materials and Labor Variances**

Fritz Corp. manufactures and sells a single product. The company uses a standard cost system. The standard cost per unit of product is as follows:

- **Materials**—1 lb plastic @ $3.00 .............................................. $3.00
- **Direct labor**—1.6 hr @ $10.00 ................................................... 16.00
- **Factory overhead** ........................................................................ 4.45
- **Total** .......................................................................................... $23.45

The charges to the manufacturing department for November, when 5,000 units were produced, include:

- **Materials**—5,300 lb @ $3.00 ........................................ $15,900
- **Direct labor**—8,200 hr @ $9.80 ................................... 80,360
- **Factory overhead** ............................................................ 23,815

- **Total** ................................................................................ $120,075

The Purchasing department normally buys about the same quantity as is used in production during a month. In November, 5,500 lb were purchased at a price of $2.90 per pound.

**Required:**

Calculate the following from standard costs for the data given, using the formulas on pages 421–422 and 424:

1. **Materials quantity variance.**

2. **Materials purchase price variance (at time of purchase).**

3. **Labor efficiency variance.**

4. **Labor rate variance.**

5. **Give some reasons as to why both the materials quantity variance and labor efficiency variance might be unfavorable.**

**Problem 8-4**

This table outlines the process to calculate variances in a manufacturing or production context. There are two main parts of the table corresponding to different types of variances: materials and labor.

### 1. Materials Quantity Variance
- **Standard Quantity or Hours:** _______ lbs.
- **Actual Quantity or Hours:** _______ lbs.
- **Difference:** _______
- **Standard Price/Rate:** _______ /lb.
- **Variance:** _______

### 2. Materials Purchase Price Variance
- **Standard Price/Rate:** _______ /lb.
- **Actual Price/Rate:** _______ /lb.
- **Difference:** _______
- **Actual Quantity or Hours:** _______
- **Variance:** _______

### 3. Labor Efficiency Variance
- **Standard Quantity or Hours:** _______ hrs.
- **Actual Quantity or Hours:** _______ hrs.
- **Difference:** _______
- **Standard Price/Rate:** _______ /hr.
- **Variance:** _______

### 4. Labor Rate Variance
- **Standard Price/Rate:** _______ /hr.
- **Actual Price/Rate:** _______ /hr.
- **Difference:** _______
- **Actual Quantity or Hours:** _______
- **Variance:** _______

Each variance section requires filling in the standard and actual metrics to calculate the difference and subsequently the variance. The aim is to analyze the efficiency and cost-effectiveness of materials used and labor employed in the production process.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions