Materials and manufacturing labour variances, standard costs
Not what you're looking for?
Materials and manufacturing labour variances, standard costs. Consider the following selected data regarding the manufacture of a line of upholstered chairs:
Direct materials 2 square metres of input at $10 per square metre
Direct manufacturing labour 0.5 hour of input at $20 per hour
The following data were compiled regarding actual performance: actual output units (chairs)
produced, 20,000; square metres of input purchased and used, 37,000; price per square metre, $10.20; direct manufacturing labour costs, $176,400; actual hours of input, 9,000; labour price per hour, $19.60.
Required
1. Show your computations on the price and efficiency variances for direct materials and for direct manufacturing labour. Give a plausible explanation of why the variances occurred.
2. Suppose 60,000 square metres of materials were purchased (at $10.20 per square meter) even though only 37,000 square metres were used. Suppose further that variances are identified with their most likely control point; accordingly, direct materials price variances are isolated and traced to the purchasing department rather than to the production department. Compute the price and efficiency variances under this approach.
Purchase this Solution
Solution Summary
This solution is comprised of a detailed explanation to answer the price and efficiency variances for direct materials and manufacturing direct labour.
Solution Preview
1. Direct Materials
In order to calculate price variance, we can compute by using the following equation:
Price variance = Actual quantity purchased x difference between actual and
standard costs per unit of input purchased
Price variance = 37,000 x (10.20 - 10.00)
Price variance = $7,400 U
The price variance might occur due to price change or price fluctuation in the market. There is also the possibility that the manager might not be up to date with the market price in the market when he sets up the standard price per unit.
In order to calculate efficiency variance, we can compute by using the following equation:
Efficiency variance = Difference between actual x Standard cost per unit of ...
Purchase this Solution
Free BrainMass Quizzes
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media