Question

Jim Graham Integrated Services uses a standard cost system, and calculates and records variances related to direct materials and direct labor. The following information was available for March: Purchases of raw materials - actual cost $110,000 Purchases of raw materials - standard cost 111,000 All of the purchased raw material was transferred to work in process, and the materials quantity variance was unfavorable by $11,000. Direct labor - actual cost $140,000 Direct labor - standard cost for output 132,000 The labor efficiency variance was favorable by $7,600. (a) Calculate materials price variance. (b) Calculate materials quantity variance. (c) Calculate labor rate and efficiency variances.

Answer 1

A. Price variance = Actual costs of Actual quantity purchased - standard costs of actual quantity purchased

= 110,000 - 111,000 = $1,000 (fav)

B. Materials quantity variance = (actual unit at standard cost - standard unit at standard cost)

If Actual unit at standard cost = $111,000

And Quantity variance is $11,000 (fav)

Standard units at standard costs price = $111,000 + $11,000 = $122,000

C. Rate variance = (actual hour x actual rate) - (actual hour x standard rate)

= $140,000 - $132,000 = $8,000 (unfav)

Efficiency variance = (actual hours - standard hours ) x standard rate

= (actual hours x standard rate) - (standard hours x standard rate)

If efficiency variance is $7,600(fav)

And actual hour and standard labor rate is $132,000

This implies standard hours at standard rate = $132,000 + $7,600 = $139,600

Efficiency variance = 132,000 - 139,600 = $7,600 (fav)