ABC Company manufactures a variety of calculators A R79 mode

ABC Company manufactures a variety of calculators. A R79 model calculafor has the following standard costs Direct material Direct labor 3 pounds 5 hours @ 2.50per pound S15.00 per hour Actual results for February are given bekow Finished units Direct labor Direct material purchas ed Direct material used 7,800 units 40,100 hours 25.000 pounds 23,200 pounds S 14 60 per hour 260 S 260 per pound 10 12 13 Required: Calculate the following variances and state it they are favorable or unfavorable 5a) Direct material price variance (2.5 Marks) Favorable / Unfavorable 19 20b) Direct material us age variance (2.5 Marks) Favorable / Unfavorable 23 26 Direct labor rate variance (2.5 Marks) Favorable/ Unfavorable d Drect labor fficiency varance (2.5 Marks) Favorable/Unfavorable Sheet1 Sheet3 Sheet4+

Solution

(a) Direct material price variance = Actual quantity x (Standard price - Actual price)

= 23,200 x (2.50 - 2.60)

= 23,200 x - 0.10

= $2,320 (unfavorable)

(b) Direct material usage variance = Standard price x (Standard quantity for actual output - Actual quantity)

= 2.50 x (7,800 x 3 - 23,200)

= 2.50 x (23,400 - 23,200)

= 2.50 x 200

= $500 (favorable)

(c) Direct labor rate variance = Actual time x ( Standard rate - Actual rate)

= 40,100 x (15 - 14.60)

= 40,100 x 0.40

= $16,040 (favorable)

(d) Direct labor efficiency variance = Standard rate x ( Standard time for actual output - Actual time)

= 15 x ( 7,800 x 5 - 40,100)

= 15 x (39,000 - 40,100)

= 15 x - 1,100

= $16,500 (unfavorable)