E10-2AMaterials and Labor Variances The following actual and standard cost data for direct materials and direct labor relate to Hadley Company's production of 2,000 units of a product: Actual costsStandard costs Direct materials3,900 lb. @ $5.204,000 lb. @ $5.10 Direct labor6,200 hr. @ $8.406,000 hr. @ $8.60 Determine the following variances: a. Materials price b. Materials efficiency c. Labor rate d. Labor efficiency

Name: E10-2AMaterials and Labor Variances The following actual and standard
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Description: E10-2AMaterials and Labor Variances The following actual and standard cost data for direct materials and direct labor relate to Hadley Company's production of 2,000 units of a product: Actual costsStandard costs Direct materials3,900

Lets understand the basics. Material price variance is a variance between the rate at which material should be purchased against the rate at which it is purchased. Material price variance = (Standard rate per unit - Actual rate per unit)* Material purchased Material efficiency variance is a variance between the quantity that should be used for production against the quantity used. Material efficiency variance = (Standard material for production - Actual material used) * Standard rate per unit Labor rate variance is a variance is a variance between the rate at which labor should be hired against the rate at which it is hired. Labor rate variance = (Standard rate per hour - Actual rate per hour)*Actual hour worked Labor efficiency variance is a variance between the hours that should be used for production against the hours taken for production. Labor efficiency variance = (Standard hour for production - Actual hour worked) * Standard rate per hour (A) Material price variance = ($5.1 - $5.2) * 3,900 = $390 (Unfavorable) (B) Material efficiency variance = (4,000 Units - 3,900 Units) * $5.1 = $510(Favorable) (C) Labor rate variance = ($8.6 - $8.4) * 6,200 Hours = $1,240 (Favorable) (D) Labor efficiency variance = (6,000 Hours - 6,200 Hours) * $8.6 = $1,720 (Unfavorable)

Answered: Materials and Labor Variances The…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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E10-2A	Materials and Labor Variances
	The following actual and standard cost data for direct materials and direct labor relate to Hadley Company's production of 2,000 units of a product:


		Actual costs	Standard costs
	Direct materials	3,900 lb. @ $5.20	4,000 lb. @ $5.10
	Direct labor	6,200 hr. @ $8.40	6,000 hr. @ $8.60

	Determine the following variances:

	a. Materials price

	b. Materials efficiency

	c. Labor rate

	d. Labor efficiency

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.

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