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    Price and Quantity Variances for Material and Labor

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    Considering the following data manufacturing company:

    Direct Direct
    Materials Labor
    Actual price per unit of input (lb and hr) $7.80 $12.00
    Standard price per unit of input $7.00 $12.75
    Standard inouts allowed per unit of output 10 2
    Actual units of input 115,000 30,000
    Actual units of output (product) 14,400 14,400

    1. Compute the price, quantity, and flexible-budget variances for direct materials and direct labor. Use U or F to indicate whether the variances are unfavorable of favorable.
    2. Prepare a plausible explanation for the performance.

    © BrainMass Inc. brainmass.com June 3, 2020, 11:31 pm ad1c9bdddf
    https://brainmass.com/business/labour-management-and-relations/price-quantity-variances-material-labor-283189

    Solution Preview

    Computation of Direct Material and Direct Labor variances

    Preliminary working:

    Standard Quantity or Usage for actual output achieved = Actual output X Standard input allowed per unit of output
    Working:
    Standard Quantity or Usage for actual output achieved = Actual output X Standard input allowed per unit of output
    = 14400 units of output X 10 units of input
    = 14400 X10 = 144000 units

    Standard Hours for actual output achieved = Actual output X Standard hours allowed per unit of output
    = 14400 units of output X 2 hours = 28800 hours

    Direct Material Variances:

    1 Direct Material cost (Total) variance = (Actual Quantity x Actual price) - (Standard quantity X Standard price) OR

    Direct material cost variance = (AQ x AP) - (SQ x SP)

    (1115000 units x $7.80) - (144000 units x $7) = $111000(F)

    2 Direct material price variance = Actual Quantity (Actual price - Standard price) OR

    Direct material price variance = AQ (AP-SP)

    115000 units ($7.80-$7.00) = ...

    Solution Summary

    This solution assists in determining and explaining price and quantity variances for material and labor.

    $2.19

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