Question

Orion corporation has established the following standards for the prime costs of one unit of its chief product, dartboards. The standard quantity for direct material is 9.00 pounds and the standard price per pound is 1.40. The standard cost for direct material is _______. The standard quantity for direct labor is 0.60 hour and the standard rate per hour is9.00. The standard cost for direct labor is _______. The total standard cost for one unit of dartboard is _______.

During June, Orion purchased 311,000 pounds of direct material at a total cost of 478,940. The total wages for June were205,920, 90 percent of which were for direct labor. Orion manufactured 33,000 dartboards during June, using 277,200 pounds of the direct material purchased in June and 21,450 direct-labor hours. Compute the following variances for June:

1. Direct-material price variance
2. Direct-material quantity variance
3. Direct-material purchase price variance
4. Direct-labor rate variance
5. Direct-labor efficiency variance

Answer 1

The standard cost for direct materials and labor per unit of dartboard is $12.60 and $5.40, respectively, for a total of $18.00. Variance calculations produce different results for material price, quantity, and labor rate and efficiency, indicating areas where Orion Corporation's actual costs diverged from the standard benchmarks.

Step-by-step explanation:

The standard cost for direct material can be calculated by multiplying the standard quantity of direct material needed (9.00 pounds) by the standard price per pound (1.40), which is $12.60 per unit. The standard cost for direct labor is found by multiplying the standard quantity for direct labor (0.60 hour) by the standard rate per hour (9.00), resulting in $5.40 per unit. Adding these two gives the total standard cost for one unit of dartboard, which is $18.00.

We can then calculate the following variances for June:

1. Direct-material price variance is the difference between the actual price paid and the standard price, multiplied by the actual quantity purchased. This is (1.54 - 1.40) * 311,000 pounds = $43,540 unfavorable.
2. Direct-material quantity variance is the difference between the actual quantity used and the standard quantity allowed for actual production, multiplied by the standard price per pound. This is (277,200 - (33,000 * 9)) * 1.40 = $9,240 unfavorable.
3. Direct-material purchase price variance is the difference between the actual cost to purchase materials and the standard cost, which is already calculated in the direct-material price variance.
4. Direct-labor rate variance is the difference between the actual hourly rate paid and the standard rate, multiplied by the actual labor hours used. This is (205,920 * 90% / 21,450 hours - 9) * 21,450 hours = $12,285 unfavorable.
5. Direct-labor efficiency variance is the difference between the actual hours used and standard hours for actual production (33,000 dartboards * 0.60 hours), multiplied by the standard rate per hour. This is (21,450 - (33,000 * 0.60)) * 9 = $25,110 favorable.