Standard Costing

Assignment #2

1. Madzinga's Draperies manufactures curtains. A certain window requires the following:

Direct materials standard 10 square yards at $5 per yard

Direct manufacturing labor standard 5 hours at $10

During the second quarter, the company made 1,500 curtains and used 14,000 square yards of fabric costing $68,600. Direct labor totaled 7,600 hours for $79,800.

Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.

ANSWER:

a)
Materials Quantity Variance = 5,000 Favorable
Materials Price Variance = 1,400 Favorable
 
b)
Labor Efficiency Variance = 1,000 Unfavorable
Labor Rate Variance = 3,800 Unfavorable

SOLUTION:

Materials Quantity Variance:

First, we determine the standard quantity:
 
Standard Quantity = Standard per Unit * Units Produced
Standard Quantity = 10 * 1500
Standard Quantity = 15,000
 
To compute:
 
MQV = (Actual Quantity - Standard Quantity) * Standard Price
MQV = (14000 - 15000) * 5
MQV = -1000 * 5
MQV = -5000 or 5,000 Favorable
 
Materials Price Variance:
First, we determine the actual price:
 
Actual Price = Actual Cost / Actual Quantity
Actual Price = 68600 / 14000
Actual Price = 4.90
 
To compute:
 
MPV = (Actual Price - Standard Price) * Actual Quantity
MPV = (4.90 - 5.00) * 14000
MPV = -1 * 14000
MPV = -1400 or 1,400 Favorable
 
b)
Labor Efficiency Variance:
First, we compute the standard labor hours:
 
Standard Hours = Standard per Unit * Units Produced
Standard Hours = 5 * 1500
Standard Hours = 7,500
 
To compute:
 
LEV = (Actual Hours - Standard Hours) * Standard Rate
LEV = (7600 - 7500) * 10
LEV = 100 * 10
LEV = 1000 or 1,000 Unfavorable
 
Labor Rate Variance:
First, we determine the actual rate:
 
Actual Rate = Actual Cost / Actual Hours
Actual Rate = 79800 / 7600
Actual Rate = 10.50
 
To compute:
 
LRV = (Actual Rate - Standard Rate) * Actual Hours
LRV = (10.50 - 10.00) * 7600
LRV = 0.50 * 7600
LRV = 3800 or 3,800 Unfavorable

2. Wilson's Winter Woolens manufactures jackets and other wool clothing. A certain designed ski parka requires the following:

Direct materials standard 2 square yards at $13.50 per yard

Direct manufacturing labor standard 1.5 hours at $20.00 per hour

During the third quarter, the company made 1,500 parkas and used 3,150 square yards of fabric costing $39,375. Direct labor totaled 2,100 hours for $45,150.

Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.

ANSWER:

Answers and Explanations:

 
2. A. Materials Quantity Variance:
First, we determine the standard quantity:
 
Standard Quantity = Standard per Unit * Units Produced
Standard Quantity = 2 * 1500
Standard Quantity = 3,000
 
To compute:
 
MQV = (Actual Quantity - Standard Quantity) * Standard Price
MQV = (3,150 - 3000) * 13.5
MQV = (150) * 13.5
MQV = 2,025 Unfavorable (Efficiency or volume variance)
 
2. A. Materials Price Variance:

First, we determine the actual price:

 
Actual Price = Actual Cost / Actual Quantity
Actual Price = 39,375 / 3,150
Actual Price = 12.5
 
To compute:
 
MPV = (Actual Price - Standard Price) * Actual Quantity
MPV = (12.50 – 13.5) * 3,150
MPV = -1 * 3,150
MPV = -3150 or 3,150 Favorable (Price Variance)

TOTAL MATERIAL VARIANCE = MQV + MPV = (2,025 U + 3150 F) = 1,125 FAVORABLE

2.) B. Labor Efficiency Variance:

First, we compute the standard labor hours:

 
Standard Hours = Standard per Unit * Units Produced
Standard Hours = 1.5 * 1500
Standard Hours = 2,250 HRS
 
To compute:
 
LEV = (Actual Hours - Standard Hours) * Standard Rate
LEV = (2,100 - 2250) * 20
LEV = 150 * 20
LEV = 3,000 Favorable

2.B. Labor Rate Variance:

First, we determine the actual rate:

 
Actual Rate = Actual Cost / Actual Hours
Actual Rate = 45,150 / 2,100
Actual Rate = 21.5
 
To compute:
 
LRV = (Actual Rate - Standard Rate) * Actual Hours
LRV = (21.50 - 20.00) * 2,100
LRV = 1.50 * 2,100
LRV = 3150 or 3150 Unfavorable

TOTAL LABOR VARIANCE = LEV+LRV = 3000 F + 3150 U = 150 UNFAVORABLE

3. The following data for the Alma Company pertain to the production of 1,000 urns during August.

Direct Materials (all materials purchased were used):

Standard cost: $6.00 per pound of urn.

Total actual cost: $5,600.
Standard cost allowed for units produced was $6,000.
Materials efficiency variance was $120 unfavorable.

Direct Manufacturing Labor:

Standard cost is 2 urns per hour at $24.00 per hour.

 Actual cost per hour was $24.50.
Labor efficiency variance was $336 favorable.

Required:
a. What is standard direct material amount per urn?
b. What is the direct material price variance?
c. What is the total actual cost of direct manufacturing labor?
d. What is the labor price variance for direct manufacturing labor?

ANSWER:

a. Standard direct material amount per urn = 1.0 pound per urn

Standard Cost per urn = $6000/1000 = $6 per urn

Standard No. of pound per urn = $6/$6 = 1 pound per urn

b. Direct material price variance = $520 Favorable

Material Price Variance = Total variance – Efficiency Variance

= ($6000 – 5600) – $120 Unfavorable
= $400 – (-$120)
= $400+$120
= $520 Favorable

c. Total actual cost of direct manufacturing labour = $11,907

LEV = (AH – SH) * SR

= (AH – SH) *24
336 = 24 AH – 24 SH
336 = 24 AH - 24 (1000/2)
336 = 24 AH – 24(500)
336 = 24 AH – 12000
24 AH-12000 = 336 FAVORABLE
24 AH = 12000 – 336
24 AH = 11664
 AH = 11664/24
AH = 486 HOURS
ACTUAL COST OF DL = AH X ACTUAL COST PER HOURS
= 486 X 24.50 = $11,907

d. Labor price variance for direct manufacturing labour = $243 Unfavorable

LPV = (AP – SP) * AH

= (24.50 -24) *486
= (0.5) *486
= 243 UNFAVORABLE

4. The following data for the telephone company pertain to the production of 450 rolls of telephone wire during June. Selected items are omitted because the costing
records were lost in a windstorm.

Direct Materials (All materials purchased were used.)

Standard cost per roll: a pounds at $4.00 per pound.

Total actual cost: b pounds costing $9,600.
Standard cost allowed for units produced was $9,000.
Materials price variance: c .
Materials efficiency variance was $80 unfavorable.

Direct Manufacturing Labor

Standard cost is 3 hours per roll at $8.00 per hour.

Actual cost per hour was $8.25.
Total actual cost: d .
Labor price variance: e .
Labor efficiency variance was $400 unfavorable.

Required:
Compute the missing elements in the report represented by the lettered items.
a) Standard cost per roll =Standard cost allowed for units produced/Number of units (rolls)
=9,000/450
=$20 Standard cost Per Roll

HOW MANY POUNDS PER ROLL = $20 SC PER ROLL/$4 PER POUND = 20/4 = 5 POUNDS AT $4 PER POUND
 
b) Actual Pound = (Standard cost allowed for units produced + Materials efficiency variance)/Cost per Pound
=(9,000 + 80)/4
=2,270 Actual Pounds

c)Materials Price Variance = Total Actual cost - (Standard cost allowed for units produced + Materials efficiency variance)
=9,600 - 9,000 + 80
=520 Unfavorable

OR

MPV = TV – MEV
=(9000-9600) – 80 UNFAVORABLE
=(-600) – (-80)
=(-600) + 80
= 520 UNFAVORABLE

 
d) Total Actual cost = Actual Hours x Actual Cost per hour
Actual Hours =Total Standard Labor Cost of Actual hours/Standard cost per hour
=(450 x 3 x 8) + 400/8
=11,200/8
=1,400

OR

LEV =(AH-SH) *8
400 = (8AH – 450X3X8)
400 = 8AH -10800
8AH-10800 = 400 UNFAVORABLE
8AH = 10800 + 400
8 AH = 11200
AH = 11200/8
AH = 1400 ACTUAL HOURS
 
Total Actual Cost = 1,400 x 8.25 =11,550
 
e)Labor Price Variance = Total Actual Cost - Total Standard Labor Cost of Actual hours

=11,550 - (450 x 3 x 8) + 400

=11,550 - 11,200
=350 Unfavorable

OR

LRV = (AP -SP) * ACTUAL HOURS

= (8.25-8.00) * 1400
= .25 X 1400
= 350 UNFAVORABLE