Question

Direct Materials and Direct Labor Variance Analysis

Jericho Fixture Company manufactures faucets in a small manufacturing facility. The faucets are made from brass. Manufacturing has 45 employees. Each employee presently provides 38 hours of labor per week. Information about a production week is as follows:
Line Item Description Value
Standard number of lbs. of brass 0.4 lb.
Standard price per lb. of brass $0.80
Standard wage per hr. $21.00
Standard labor time per faucet 15 min.
Actual price per lb. of brass $0.90
Actual lbs. of brass used during the week 4,500 lbs.
Number of faucets produced during the week 10,000
Actual wage per hr. $22.00
Actual hrs. for the week (45 employees × 38 hours) 1,710

Determine the below-listed variances while showing work with corresponding formulas.

1. Standard cost per unit for direct materials
2. Standard cost per unit for direct labor
3. Direct Material price variance
4. Direct Material quantity variance
5. Direct Labor rate variance
6. Direct Labor time variance

Answer 1

Answer: A. Determine the standard cost per unit for direct materials and direct labor. Round the cost per unit to two decimal places.

Direct materials standard cost per unit: $0.32

Direct labor standard cost per unit: $5.25

Total standard cost per unit: $5.57

B. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Direct Materials Price Variance: $450, Unfavorable

Direct Materials Quantity Variance: $400, Unfavorable

Total Direct Materials Cost Variance: $850, Unfavorable

C. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Direct Labor Rate Variance: $1710, Unfavorable

Direct Labor Time Variance: $-16590, Favorable

Total Direct Labor Cost Variance: $-14880, Favorable

Step-by-step explanation:

A. Standard Materials and Labor Cost per Faucet

Direct materials: ($0.80 per lb. × 0.4 lb.) $ 0.32

Direct labor: [$21.00 per hr. × (15 min. ÷ 60 min.)] 5.25

Total standard cost per unit: $5.57

B. Direct Materials Cost Variance

Price variance:

Direct Materials Price Variance = (Actual Price – Standard Price) × Actual Quantity

Direct Materials Price Variance = ($0.90 per lb. – $0.80 per lb.) × 4,500 lbs.

Direct Materials Price Variance = $450 Unfavorable

Quantity variance:

Direct Materials Quantity Variance = (Actual Quantity – Standard Quantity) × Standard Price

Direct Materials Quantity Variance = (4,500 lbs. – 4,000 lbs.*) × $0.80 per lb.

Direct Materials Quantity Variance = $400 Unfavorable

*10,000 units × 0.4 lb.

Total direct materials cost variance:

Direct Materials Cost Variance = Direct Materials Price Variance + Direct Materials Quantity Variance

Direct Materials Cost Variance = $450 Unfavorable + $400 Unfavorable

Direct Materials Cost Variance = $850 Unfavorable

C. Direct Labor Cost Variance

Rate variance:

Direct Labor Rate Variance = (Actual Rate per Hour – Standard Rate per Hour) × Actual Hours

Direct Labor Rate Variance = ($22.00 – $21.00) × 1,710* hrs

Direct Labor Rate Variance = $1,710 Unfavorable

*45 employees × 38 hrs.

Time variance:

Direct Labor Time Variance = (Actual Direct Labor Hours – Standard Direct Labor Hours) × Standard Rate per Hour

Direct Labor Time Variance = (1,710 hrs.* – 2,500 hrs.**) × $21.00 per hour

Direct Labor Time Variance = $(16,590) Favorable

*45 employees × 38 hrs.

**10,000 units × (15 min. ÷ 60 min.)

Total direct labor cost variance:

Direct Labor Cost Variance = Direct Labor Rate Variance + Direct Labor Time Variance

Direct Labor Cost Variance = $1,710 Unfavorable + $(16,590) Favorable

Direct Labor Cost Variance = $(14,880) Favorable

Answer 2

1. Standard cost per unit for direct materials:

Standard cost per unit = Standard price per lb. of brass x Standard number of lbs. of brass
Standard cost per unit = $0.80 x 0.4 = $0.32

Therefore, the standard cost per unit for direct materials is $0.32.

2. Standard cost per unit for direct labor:

First, we need to calculate the standard labor cost per faucet:

Standard labor cost per faucet = (Standard wage per hr. / 60) x Standard labor time per faucet
Standard labor cost per faucet = ($21.00 / 60) x 15 = $5.25

Then, we can calculate the standard cost per unit for direct labor:

Standard cost per unit = Standard labor cost per faucet / Number of faucets produced
Standard cost per unit = $5.25 / 10,000 = $0.000525

Therefore, the standard cost per unit for direct labor is $0.000525.

3. Direct Material price variance:

Direct material price variance = (Actual price per lb. of brass - Standard price per lb. of brass) x Actual lbs. of brass used during the week
Direct material price variance = ($0.90 - $0.80) x 4,500 lbs. = $4,500

Therefore, the direct material price variance is $4,500.

4. Direct Material quantity variance:

Direct material quantity variance = (Actual lbs. of brass used during the week - Standard number of lbs. of brass per unit x Number of units produced) x Standard price per lb. of brass
Direct material quantity variance = (4,500 lbs. - 0.4 lb. x 10,000) x $0.80 = $1,600

Therefore, the direct material quantity variance is $1,600.

5. Direct Labor rate variance:

Direct labor rate variance = (Actual wage per hr. - Standard wage per hr.) x Actual hrs. for the week
Direct labor rate variance = ($22.00 - $21.00) x 1,710 = $1,710

Therefore, the direct labor rate variance is $1,710.

6. Direct Labor time variance:

Direct labor time variance = (Actual hrs. for the week - Standard labor time per unit x Number of units produced) x Standard wage per hr.
Direct labor time variance = (1,710 - 15 / 60 x 10,000) x $21.00 = $3,150

Therefore, the direct labor time variance is $3,150.