In early 2012, Duncan Manufacturing Inc. had budgeted for the production and sal
ID: 2496929 • 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)
Actual results for 2012 were determined to be as follows:
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 Cost: $51,300 (171,000 minutes at $.30 per minute)
Sales Price Variance: 27,000 units
Direct Materials Price Variance: $2,925
Direct Materials Usage Variance: 9,000
Required: Compute each of the following variances. Indicate whether the variance is favorable or unfavorable.
A. Direct Labor Rate Variance
B. Direct Labor Efficiency Variance
Explanation / Answer
A.
Budgeted lanour rate = $0.30 imute
Actual labour minute = $171,000
Actual labour rate = $0.30 per minute
Direct labor rate variance = Actual hours (Actual rate - Budgeted rate) = $171,000 ($0.30 - $0.30) = $0.
B.
Labor Efficiency Variance = Standard Cost of Actual Hours - Standard Cost
= ($0.30 * 171,000 minutes) - ($0.30 * 18,000 units * 10 minutes) = $51,300 - $54,000 = $2,700 Favorable