In early 2012, Duncan Manufacturing Inc. had budgeted for the production and sal
ID: 2496964 • 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
Solution.
Direct Labor Rate Variance = Actual Cost - Standard Cost of the Actual Hours
Direct Labor Rate Variance = $51,300 - $70,000
= $18,700 Favorable
B. Direct Labor Efficiency Variance :-
Direct Labor efficiency variance =Actual Hours x Standard Rate - Standard Hours x Standard Rate
= 171,000 minutes x $.35 per minute - .200,000 minute x .35 per minute
= $59,850 - $70,000
= $10,150 Favorable