Question

The Smith Corporation manufactures pet food. It has the following standards per finished unit for direct materials and direct manufacturing labour. Direct materials: 10 kg at $4.50 per kg. $45.00 Direct manufacturing labour: 0.5 hours at $30 per hour $15.00 The number of finished units budgeted for January was 10,000; 9,850 units were actually produced. Actual results in January were as follows: Direct materials 98,055 kg used Direct Manufacturing labour: 4,900 hours $154,350 Assume there were no opening direct material inventory or finished goods inventory. During the month, materials purchased amounted to 100,000 kg.at a total cost of $465,000. Input price variances are isolated upon purchases and input-efficiency variances are isolated at the time of usage. Required: Compute the January price and efficiency variances of direct materials and direct manufacturing labour.

Answer 1

The Smith Corporation has a $15,000 unfavorable Direct Materials Price Variance and a $2,002.5 favorable Direct Materials Efficiency Variance. For Direct Manufacturing Labour, the Price Variance is $7,350 unfavorable, and the Efficiency Variance is $750 favorable.

Step-by-step explanation:

To compute the January price and efficiency variances for direct materials and direct manufacturing labour for Smith Corporation, we'll follow variance analysis procedures. We'll calculate both Direct Materials Price Variance (DMPV) and Direct Materials Efficiency Variance (DMEV), as well as Direct Manufacturing Labour Price Variance (DMLPV) and Direct Manufacturing Labour Efficiency Variance (DMLEV).

Direct Materials Price Variance (DMPV)

Standard Cost (SC) for materials = 10 kg/unit x $4.50/kg = $45/unit
Actual Cost (AC) for materials = $465,000/100,000 kg = $4.65/kg
DMPV = (Standard Price - Actual Price) x Actual Quantity Purchased
DMPV = ($4.50/kg - $4.65/kg) x 100,000 kg = -$15,000 (Unfavorable)

Direct Materials Efficiency Variance (DMEV)

Standard Quantity (SQ) for actual production = 9,850 units x 10 kg/unit = 98,500 kg
Actual Quantity (AQ) used = 98,055 kg
DMEV = (Standard Quantity - Actual Quantity) x Standard Price
DMEV = (98,500 kg - 98,055 kg) x $4.50/kg = $2,002.5 (Favorable)

Direct Manufacturing Labour Price Variance (DMLPV)

Standard Cost (SC) for labour = 0.5 hours/unit x $30/hour = $15/unit
Actual Rate (AR) for labour = $154,350/4,900 hours = $31.50/hour
DMLPV = (Standard Rate - Actual Rate) x Actual Hours
DMLPV = ($30/hour - $31.50/hour) x 4,900 hours = -$7,350 (Unfavorable)

Direct Manufacturing Labour Efficiency Variance (DMLEV)

Standard Hours (SH) for actual production = 9,850 units x 0.5 hours/unit = 4,925 hours
Actual Hours (AH) worked = 4,900 hours
DMLEV = (Standard Hours - Actual Hours) x Standard Rate
DMLEV = (4,925 hours - 4,900 hours) x $30/hour = $750 (Favorable)