BUS 5110 - Written Assignment Unit 5

University of the People

To Answer I will like to break them down step by step:

1.Standard Cost:

Fruit: 200,000/20,000 = 10/carton

Packaging: 10,000/20,000 = 0.5/carton

Labor: 90,000/20,000 = 4.5

Standard Cost = 15/carton (10 + 0.5 + 4.5)

2.Actual cost per unit:

Fruit: 244,200/20,000 = 12.21/Carton

Packaging: 11,000/20,000 = 0.55/carton

Labor: 150,000/20,000 = 7.5/carton

Actual cost per carton = 20.26/carton

3.Direct Materials Price Variance: indicates the difference between the actual cost
of direct materials and the standard cost of direct materials[ CITATION Accnd1 \l
1033 ].

Standard cost of direct materials: Fruit + Packaging: (200,000 x 1) + (11,000 x 0.50)

(standard cost x actual quantity)

Actual amount spent on direct materials Fruit + Packaging: (200,000 x 1.221) +

(11,000 x 1) (Actual price x actual quantity)

Variance: 255,200 - 205,500 = 49,700 unfavorable

Workings-1: (The information will be used for material price & usage variance)

Fruit:

Standard cost: 20,000 x 10 = 200,000 Pounds; 200,000 Pounds x 1 = $200,000

Standard cost = 1

Standard quantity = 200,000

Actual cost: 20,000 x 10 = 200,000 Pounds; 200,000 x 1.221 = $244,200

Actual cost = 1.221

Actual quantity = 200,000

Packaging:

Standard cost: 20,000 x 1 = 20,000 Pounds x 0.5 = 10,000

Standard rate = 0.5;

Standard quantity = 20,000

Actual cost: 20,000 x 0.55 = 11,000 Pounds x 1 = 11,000

Actual rate = 1

Actual Quantity = 11,000

The variance is unfavorable because the actual spent on purchasing the material is
higher than the standard price of direct materials. The purchase department should be
consulted in order to determine the reason of unfavorable variance.

4.Direct material usage variance: indicates the difference between the standard cost
of direct materials that should have been used (standard quantity times standard cost)
for the good output and the actual quantity of direct materials used at their standard
cost[ CITATION Accnd2 \l 1033 ].

It is calculated as: (Standard Usage - Actual usage) x Standard cost per unit.

Actual usage: 11,000

Standard Usage: 20,000

Standard price: 0.50

Variance: (20,000 - 11,000) x 0.50 = $4,500 favorable

The usage variance is favorable as actual usage is lower than standard usage, this
means that production department is working efficiently and a good quality of
packaging in bought by the purchasing department. There is no usage variance in fruit
usage as 10 pounds per carton is used under budgeted and actual.

5.Direct Labor rate variance: It is difference between the standard cost of direct
labor for standards hours and the standards cost of actual hours. It is calculated as:

Actual Hours x Standard rate: 15,000 x 9 = 135,000

Actual Hours x Actual rate: 15,000 x 10 = 150,000

Variance: 15,000 unfavorable

Standards hours x standard rate:

Production department (usually production supervisor) is to concerned for the
inquiries about labor rate variance.

Workings-2: (Will be used for labor rate & efficiency variance)

Standard cost: 20,000 x 0.50 = 10,000 hours; 10,000 x 9 = 90,000

Standard rate = 9/hr.

Standard Hours = 10,000

Actual Cost: 20,000 x 0.75 = 15,000 hours; 15,000 x 10 = 150,000

Actual rate = 10/hour

Actual hours = 15,000

6.Direct labor efficiency variance: It is calculated as Actual hours less standard hours
multiplied by standard rate.

(Actual Hours - Standard Hours) x standard rate: (15,000 - 10,000) x 9 = 45,000

unfavorable

As ore hours are spent therefore it is an unfavorable variance. The production

manager should be contacted in order to determine the reason of the unfavorable

variance. Furthermore, the purchase department (usually purchase manager) should

also be asked about the quality of material as poor material might take more time.

Conclusion: The labor efficiency variance and direct material variances are the

highest variances. The management should look into the production department as

both these variances are pointing towards the inefficiency of production department.

The management should also inquire about the material quality that is being

purchased as poor quality material will affect labor as well as material efficiency. The

labor rate unfavorable variance shows another inefficiency of the production

department. To conclude, management should take measures to check the quality of

the materials purchased and efficiency of the production department; the machinery

involved in production should also be checked.

 References

Accountingcoach. (n.d.). direct materials price variance definition. Retrieved Mar 4,

2020, from Accountingcoach: https://www.accountingcoach.com/terms/D/direct-

materials-price-variance

Accountingcoach. (n.d.). direct materials usage variance definition. Retrieved 2020,

from Accountingcoach: https://www.accountingcoach.com/terms/D/direct-

materials-usage-variance