Chapter 23, Problem 15E

To determine

Direct Material Price Variance:

The variance which is caused by the difference between the actual price per unit incurred and the expected price per unit to be incurred on the direct material is called the direct material price variance.

Direct Material Quantity Variance:

At the standard price, the difference between the actual quantity and standard quantity is termed as direct material quantity variance. The quantity variance measures the efficiency of management in utilizing the direct material for the production.

Direct Labor Rate Variance:

The difference between the actual rate per direct labor hour and standard rate per direct labor hours at the actual labor hour is called the direct labor rate variance. It measures the variance due the changes in the rate of direct labor hour.

Direct Labor Efficiency Variance:

The variance which is caused by the difference between the actual labor hours and standard labor hours allowed per unit is called the direct labor efficiency variance. It is computed by deducting the standard cost of direct labor from the standard cost at actual direct labor hour.

1. Computation of direct materials price and quantity variances and classify each as favorable or unfavorable.

2. Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable.