Question

Purvis Manufacturing, which produces a single product, has prepared the following standard cost sheet for one unit of the product. Direct materials (6 pounds at $2 per pound) $12 Direct labor (2 hours at $12 per hour) $24 During the month of April, the company manufactures 300 units and incurs the following actual costs.

Direct materials purchased and used (1,850 pounds) $4,070
Direct labor (620 hours) $7,130
Compute the total, price, and quantity variances for materials and labor. Identify whether the variance is favorable or unfavorable?

Answer 1

1. Actual Quantity = 1,850 pounds

Actual materials cost = $4,070

Standard rate per pound = $2

Standard Quantity = 6 pounds per unit * 300 units

Standard Quantity = 1,800

Standard materials cost = Standard Quantity * Standard rate per pound

Standard materials cost = 1,800 * $2

Standard materials cost = $3,600

1a. Total Materials Variance = Actual materials cost - Standard materials cost

Total Materials Variance = $4,070 - $3,600

Total Materials Variance = $470 Unfavorable

1b. Materials Price Variance = Actual materials cost - Actual Quantity * Standard rate per pound

Materials Price Variance = $4,070 - 1,850 * $2

Materials Price Variance = $370 Unfavorable

1c. Materials Quantity Variance = Standard rate per pound * (Actual Quantity - Standard Quantity)

Materials Quantity Variance = $2.00 * (1,850 - 1,800)

Materials Quantity Variance = $100 Unfavorable

2. Actual labor hours = 620

Actual labor cost = $7,130

Standard rate per hour = $12

Standard labor hours = 2 hours per unit * 300 units

Standard labor hours = 600

Standard labor cost = Standard labor hours * Standard rate per hour

Standard labor cost = 600 * $12

Standard labor cost = $7,200

2a. Total Labor Variance = Actual Labor cost - Standard Labor cost

Total Labor Variance = $7,130 - $7,200

Total Labor Variance = $70 Favorable

2b. Labor Price Variance = Actual Labor cost - Actual labor hours * Standard rate per hour

Labor Price Variance = $7,130 - 620 * $12

Labor Price Variance = $310 Favorable

2c. Labor Quantity Variance = Standard rate per hour * (Actual labor hours - Standard labor hours)

Labor Quantity Variance = $12.00 * (620 - 600)

Labor Quantity Variance = $240 Unfavorable