In early 2012, Duncan Manufacturing Inc. had budgeted for the production and sal
ID: 2469027 • Letter: I
Question
In early 2012, Duncan Manufacturing Inc. had budgeted for the production and sale of 20,000 units at a sales price of $25 per unit. The following information is available regarding the standard cost the each unit:
Direct Materials: $6.00 (3 pounds at $2.00 per lb)
Direct Labor: $3.50 (10 minutes of assembly at $.35 per minute)
Number of units produced and sold: 18,000 units
Sales Revenue: $477,000 ($26.5 per unit)
Direct Materials cost: $199,925 (58,500 lbs purchased and used at $2.05 per lb)
Direct Labor Cos: $51,300 (171,000 minutes at $.30 per minute)
Required: Compute each of the following variances. Indicate whether the various is favorable or unfavorable.
A. Sales Price Variance
B. Direct Materials Price Variance
C. Direct Materials Usage Variance
Explanation / Answer
A. Sales Price Variance = (Actual sales Price - standard sale price) * actual units of sale
= ($26.5 - $25) * 18000 units
= $27000 favorable
B. Direct Materials Price Variance = Actual price * Actual quantity - Actual quantity * standard price
= ($2.05 * 58500lbs) - ( 58500lbs * $2)
= $119925 - $117000
= $2925 unfavorable