Cost Accounting Problem: Material and labor variances: Complete the following: T
ID: 2468142 • Letter: C
Question
Cost Accounting Problem: Material and labor variances: Complete the following:
The following data pertain to the first week of operations during June:
Materials:
Actual purchases........................................1500 units @$3.80/unit
Actual usage...............................................1350 units
Standard usage...........................................1020 units @$4.00/unit
Labor:
Actual hours...............................................310 hours @ $12.10/hour
Standard hours...........................................340 hours @ $12.00/hour
Complete the three material variances and the two labor variances.
Please use the formulas below:
The following are the formulas for the variances. For brevity purposes A stands for Actual and S stands for Standard. C stands for Cost, Q stands for Quantity, R stands for Rate, and H stands for Hours.
MATERIAL PURCHASE PRICE VARIANCE
AQ x [ AC - SC ]
Measures the relationship between the price we paid for all purchased materials against the cost we should have paid.
MATERIAL PRICE USAGE VARIANCE
Same formula...........................this one is the amount used as opposed to the first formula which is the amount bought.
Same except just for the amount we used during this time frame.
MATERIAL QUANTITY VARIANCE
SC x [ AQ - SQ ]
Measures how much material we used against what we should have used. Often an indication of how careful our laborers were and how much was wasted.
LABOR RATE VARIANCE
AH x [ AR - SR ]
Measures actual rate/hour paid to the direct laborers against what it should have been. Often is too high due to unbudgeted overtime.
LABOR EFFICIENCY VARIANCE
SR x [ AH - SH ]
Remember to label each F or UF. Find all five variances.
Explanation / Answer
1.
MATERIAL PURCHASE PRICE VARIANCE
AQ x [ AC - SC ]
= 1350 ( 3.80 - 4) = $270 F
2. MATERIAL PRICE USAGE VARIANCE
AQ x [ AC - SC ]
being the usage and purchase price is same, so
= 1350 ( 3.80 - 4) = $270 F
3.
MATERIAL QUANTITY VARIANCE
SC x [ AQ - SQ ]
= 4 ( 1350 - 1020) = $1320 UF
4.
LABOR RATE VARIANCE
AH x [ AR - SR ]
= 310 ( 12.10 - 12) = $31 UF
5.
LABOR EFFICIENCY VARIANCE
SR x [ AH - SH ]
= 12 * (310 - 340) = $360 F