(1) (2) (3)

Actual Quantity of Input, Actual Quantity of Input, Standard Quantity Allowed for
at Actual Price at Standard Price Actual Output, at Standard Price
(AQ x AP) (AQ x SP) (SQ x SP)

Price Variance Quantity Variance

(1) - (2) (2) - (3)

Materials price variance Materials quantity variance

Labor rate variance Labor efficiency variance
Variable overhead Variable overhead
spending variance efficiency variance

Total Variance

General Model for Variable Manufacturing costs Variance Analysis

Exercise - Variable Manufacturing costs Variance Analysis

Royal Company produces a single product. Variable manufacturing overhead is applied to products on the basis
of direct labor-hours. The standard costs for one unit of product are as follows:
Direct material: 6 ounces at Br 0.50 per ounce Br 3
Direct labor: 1.8 hours at Br 10 per hour 18
Variable manufacturing overhead: 1.8 hours at Br 5 9
per hour
Total standard variable cost per unit Br 30

During June, 2,000 units were produced. The costs associated with June’s operations were as follows:

Material purchased: 18,000 ounces at Br 0.60 per Br 10,800

ounce
Material used in production: 14,000 ounces —
Direct labor: 4,000 hours at Br 9.75 per hour Br 39,000
Variable manufacturing overhead costs incurred Br 20,800

Required: Compute the direct materials, direct labor, and variable manufacturing overhead variances.

Exercise - Direct Materials and Direct Labor Variances

Kids Toy, Ltd., produces a toy. The company has recently established a standard cost system to help control
costs and has established the following standards for the toy:
Direct materials: 6 microns per toy at Br 0.50 per micron
Direct labor: 1.3 hours per toy at Br 8 per hour
During July, the company produced 3,000 Maze toys. Production data for the month on the toy follow:
Direct materials: 25,000 microns were purchased at a cost of Br 0.48 per micron. 5,000 of these microns were
still in inventory at the end of the month.
Direct labor: 4,000 direct labor-hours were worked at a cost of Br 36,000.
Required: Compute the following variances for July:
a) Direct materials price and quantity variances.

1
 b) Direct labor rate and efficiency variances.

Exercise - Direct Materials and Direct Labor Variances

Haye Company produces a commercial cleaning compound known as Zoom. The direct materials and direct
labor standards for one unit of Zoom are given below:
Standard Quantity or Standard Price or Standard Cost
Hours Rate
Direct materials 4.6 pounds Br 2.50 per pound Br 11.50
Direct labor 0.2 hours Br 12.00 per hour Br 2.40

During the most recent month, the following activity was recorded:
a) Twenty thousand pounds of material were purchased at a cost of Br 2.35 per pound.
b) All of the material purchased was used to produce 4,000 units of Zoom.
c) 750 hours of direct labor time were recorded at a total labor cost of Br 10,425.
Required:
1) Compute the direct materials price and quantity variances for the month.
2) Compute the direct labor rate and efficiency variances for the month.