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"PROBLEM 8-20A Direct Materials and Direct Labor Variances; Computations from
Incomplete Data (LO2, LO3) CHECK FIGURE (1a) Actual cost: $7.90 per foot (2a)
Standard labor rate: $7.50 per hour Cramer Company manufactures a product for which
the following standards have been set: Standard Quantity or Hours Standard Price or Rate
Standard Cost Direct materials 2.00 feet $8.00 per foot $16.00 Direct labor ? hours ? per
hour ? During June, the company purchased direct materials at a cost of $49,770, all of
which were used in the production of 3,000 units of product. There were no beginning
inventories of raw materials. In addition, 5,400 hours of direct labor time were worked on
the product during the month. The cost of this labor time was $38,340. The following
variances have been computed for the month: Materials quantity variance $2,400 U Total
labor variance $90 U Labor efficiency variance $2,250 U Required: 1. For direct
materials: a. Compute the actual cost per foot for materials for June. b. Compute the
materials price variance and a total variance for materials. 2. For direct labor: a. Compute
the standard direct labor rate per hour. b. Compute the standard hours allowed for the
month’s production. c. Compute the standard hours allowed per unit of product. (Hint: In
completing the problem, it may be helpful to move from known to unknown data either
by using the columnar format shown in Exhibits 8–4 and 8–6 or by using the variance
formulas.)"

1. a. Materials quantity variance = SP (AQ – SQ)

$8.00 per foot (AQ – 6,000 feet*) = $2,400 U
$8.00 per foot × AQ – $48,000 = $2,400**
$8.00 per foot × AQ = $50,400
AQ = 6,300 feet
*3,000 units × 2.00 feet per unit
**When used with the formula, unfavorable variances are positive and
favorable variances are negative.
Therefore, $49,770 ÷ 6,300 feet = $7.90 per foot.

b. Materials price variance = AQ (AP – SP)

6,300 feet ($7.90 per foot – $8.00 per foot) = $630 F
The total variance for materials would be:
Materials price variance.................................... $ 630 F
Materials quantity variance.............................. 2,400 U
Total variance.................................................... $1,770 U
 Alternative approach to parts (a) and (b):
Actual Quantity of Input, Actual Quantity of Input, Standard Quantity Allowed for
at Actual Price at Standard Price Actual Output, at Standard Price
(AQ × AP) (AQ × SP) (SQ × SP)
6,300 feet 6,300 feet 6,000 feet**
× $7.90 per foot × $8.00 per foot* × $8.00 per foot*
= $49,770* = $50,400 = $48,000
  
Price Variance, Quantity Variance,
$630 F $2,400 U*

Total Variance, $1,770 U

*Given.
**3,000 units × 2.00 feet per unit = 6,000 feet

2. a. Labor rate variance = AH (AR – SR)

5,400 hours ($7.10 per hour* – SR) = $2,160 F**
$38,340 – 5,400 hours × SR = -$2,160***
5,400 hours × SR = $40,500
SR = $7.50 per hour
*$38,340 ÷ 5,400 hours
**Total labor variance............................................................... $ 90U
Labor efficiency variance...................................................... 2,250U
Labor rate variance................................................................ $2,160F
***When used with the formula, unfavorable variances are positive and
favorable variances are negative.

b. Labor efficiency variance = SR (AH – SH)

$7.50 per hour (5,400 hours – SH) = $2,250 U
$40,500 – $7.50 per hour × SH = $2,250*
$7.50 per hour × SH = $38,250
SH = 5,100 hours
*When used with the formula, unfavorable variances are positive
and favorable variances are negative.

Alternative approach to parts (a) and (b):

Actual Hours of Input, at Actual Hours of Input, at the Standard Hours Allowed for
the Actual Rate Standard Actual Output, at the Standard
 Rate Rate
(AH × AR) (AH × SR) (SH × SR)
$38,340* 5,400 hours* 5,100 hours
× $7.50 per hour × $7.50 per hour
= $40,500 = $38,250
  
Rate Variance, Efficiency Variance,
$2,160 F $2,250 U*

Total Variance, $90 U*

*Given.
c. The standard hours allowed per unit of product would be:
5,100 hours ÷ 3,000 units = 1.70 hours per unit