Price and Quantity Variances for Material and Labor
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.
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.