Question

During June, Danby Company's material purchases amounted to 6,100 pounds at a price of $7.40 per pound. Actual costs incurred in the production of 2,100 units were as follows: direct labor: $119,210 ($18.20 per hour) direct material: $31,820 ($7.40 per pound). The standards for one unit of Danby Company's product are as follows: direct labor: quantity, 3 hours per unit rate, $18.10 per hour direct material: quantity, 2 pounds per unit price, $7.10 per pound. Compute the direct-material price and quantity variances, the direct-material purchase price variance, and the direct-labor rate and efficiency variances.

Answer 1

The computation involves identifying the variances between actual costs and standard costs for direct materials and labor, reflecting the efficiency and cost management of Danby Company in its production process.

Step-by-step explanation:

To compute the direct-material price variance, the direct-material quantity variance, the direct-material purchase price variance, and the direct-labor rate and efficiency variances for Danby Company's product, we must first understand the standard costs and the actual costs incurred. We calculate each variance by comparing what the actual costs have been against the standard (or expected) costs for the production.

The standard cost for direct materials is $7.10 per pound, and for direct labor, it is $18.10 per hour. Danby Company purchased 6,100 pounds at $7.40 per pound and incurred $31,820 on direct materials for the production of 2,100 units. Direct labor costs them $119,210, which equates to $18.20 per hour.

We determine the direct-material purchase price variance by calculating the difference between the actual cost of materials purchased and what the costs should have been at the standard price. Similarly, the direct-material quantity variance is calculated by comparing the standard quantity of materials that should have been used for the actual output with the actual quantity used. For direct-labor rate variance, we compare the actual hourly labor rate to the standard rate. Lastly, the direct-labor efficiency variance is determined by the difference between the standard hours that should have been worked and the actual hours worked.