Chapter 13, Problem 13.4P

Direct materials and direct labor variance analysis
Faucet Industries Inc. manufactures faucets in a small manufacturing facility. The faucets are made from zinc. Faucet Industries has 60 employees. Each employee presently provides 36 hours of labor per week. Information about a production week is as follows:

Instructions

Determine (a) the standard cost per unit for direct materials and direct labor; (h) the price variance, quantity variance, and total direct materials cost variance; and (c) the rate variance, time variance, and total direct labor cost variance.

To determine

(a)

Concept Introduction:

Standard cost is an accounting system which is used by manufacturers to know the difference between actual cost and standard cost of product.

To Compute:

The standard cost per unit for direct material and direct labor.

Answer to Problem 13.4P

The standard cost per unit for direct material is $1$ and the standard cost per unit for direct labor is $3.6$

Explanation of Solution

Details of material and labour are given in following table:

Materials and Labours
Particulars	Standard Quantity	Standard Price(per unit)	Standard Cost	Actual Quantity	Actual Price(Per unit)	Actual cost
Material (lbs)	$9,600$	$\$1.25$	$\$12,000$	$10,200$	$\$1.40$	$\$14,280$
Labour (hrs)	$2,400$	$\$18$	$\$43,200$	$2,160$	$\$18.75$	$\$40,500$

Now, the calculation of standard cost per unit of direct material and direct labour:

Particulars	Amount ($)( $12,000$ Faucets)	Amount per Faucet
Material	$12,000$	$1$
Labour	$43,200$	$3.6$
	$55,200$	$4.6$

To determine

(b)

Concept Introduction:

Standard cost is an accounting system which is used by manufacturers to know the difference between actual cost and standard cost of product.

To Compute:

The price variance, quantity variance and cost variance direct material.

Answer to Problem 13.4P

The direct material price variance is $1,530\left(\text{A}\right)$.

The direct material quantity variance is $750\left(\text{A}\right)$.

The direct material cost variance is $2,280\left(\text{A}\right)$

Explanation of Solution

Computation of direct material price variance is as follows:

  $\begin{array}{c}\text{Direct material price variance }=\text{ Actual quantity }\times \left(\text{Actual price }-\text{ Standard price}\right)\\ =10,200\times \left(1.40-1.25\right)\\ =10,200\times \left(0.15\right)\\ =1,530\left(\text{A}\right)\end{array}$

Direct material price variance is adverse as the actual price is more than standard price.

Computation of Direct material quantity variance is as follows:

  $\begin{array}{c}\text{Direct material quantity variance }=\text{ Standard price }\times \left(\text{Actual quantity }-\text{ Standard quantity}\right)\\ =1.25\times \left(10,200-9,600\right)\\ =1.25\times \left(600\right)\\ =750\left(\text{A}\right)\end{array}$

Direct material quantity variance is adverse as the actual quantity is more than standard quantity.

Computation of Direct material cost variance is as follows:

  $\begin{array}{c}\text{Direct material cost variance }=\text{ Direct material quantity variance }+\text{ Direct material price variance}\\ =750\left(\text{A}\right)+1,530\left(\text{A}\right)\\ =2,280\left(\text{A}\right)\end{array}$

The direct material cost variance is also adverse.

To determine

(c)

Concept Introduction:

Standard cost is an accounting system which is used by manufacturers to know the difference between actual cost and standard cost of product.

To Compute:

The rate variance, time variance and cost variance of direct labour.

Answer to Problem 13.4P

The direct labourrate variance is $1,620\left(\text{A}\right)$.

The direct labour time variance is $4,320\left(\text{F}\right)$.

The direct labour cost variance is $2,700\left(\text{F}\right)$

Explanation of Solution

Computation of direct labour rate variance is as follows:

  $\begin{array}{c}\text{Direct labour rate variance }=\text{ Actual hours }\times \left(\text{Actual rate per hour }-\text{ Standard rate per hour}\right)\\ =2,160\times \left(18.75-18\right)\\ =2,160\times \left(0.75\right)\\ =1,620\left(\text{A}\right)\end{array}$

Direct labour rate variance is adverse as the actual rate per hour is more than standard rate per hour.

Computation of Direct labor time variance is as follows:

  $\begin{array}{c}\text{Direct labour time variance }=\text{ Standard rate per hour }\\ \times \left(\text{Actual direct labour hours }-\text{ Standard direct labour hours}\right)\\ =18\times \left(2,160-2400\right)\\ =18\times \left(-240\right)\\ =4,320\left(\text{F}\right)\end{array}$

Direct labour time variance is Favorable as the actual direct labour hours is less than standard direct labour hours.

Computation of Direct labour cost variance is as follows:

  $\begin{array}{c}\text{Direct material cost variance }=\text{ Direct labour rate variance }+\text{ Direct labour price variance}\\ =1,620\left(\text{A}\right)+\left[-4320\left(\text{F}\right)\right]\\ =2,700\left(\text{F}\right)\end{array}$

The direct labour cost variance is also Favorable.