Paul Corp. manufactures and sells a single product. The company uses a standard
ID: 2497679 • Letter: P
Question
Paul Corp. manufactures and sells a single product. The company uses a standard cost system. The standard cost per unit of product follows:
Materials… 1 lb. plastic @ $ 3.00.......................................................................................... $ 3.00
Direct labor…1.6 hours @ $10.00.......................................................................................... 16.00
Factory overhead................................................................................................................... 4.45
Total $23,45
The charges to the manufacturing department for November, when 5,000 units were produced, follow:
Material…5,300 lb. plastic @ $3.00.................................................................................... $ 15,900
Direct labor…8,200 hours @ $9.80................................................................................... 80,360
Factory overhead............................................................................................................... 23,815
Total $120,075
The Purchasing department normally buys about the same quantity as is used in production during a month. In November, 5,500 lbs. were purchased at a price of $2.90 per pound.
Required:
Calculate the following variances from standard costs for the data given. (See pages 402 and 403)
1.Materials quantity.
2.Materials purchase price (at time of purchase).
3.Labor efficiency.
4.Labor rate.
Standard Quantity or Hours Actual Quantity or Hours Difference Standard Cost Variance 1. Materials quantity variance lbs. lbs. /lb. 3. Labor efficiency variance hrs. hrs. /hr. Standard Cost Actual Cost Difference Actual Quantity or Hours Variance 2. Materials purchase price variance /lb. /lb. lbs. 4. Labor rate variance /hr. /hr. hrs.Explanation / Answer
Material Quantity Variance = ( SP * SQ) - ( SP * AQ ) = ( 3 * 5000*1) - ( 2.9 * 5300 ) = 500 (F)
Material Purchase Price Variance= ( SP * PQ ) - ( AP * PQ) = ( 3 *5500) - ( 2.9 *5500 ) = 550 (F)
Where
SP = Standard Price Per unit
SQ = Standard quantity for Actual Production units
AQ = Actual Quantity of Material Consumed for Production units
PQ = Purchase Quantity of Materials
AP = Actual Price Per unit
Labour Efficiency Variance = ( SR * SH ) - ( SR * AH# ) = ( 10 * 5000*1.6 ) - ( 10 * 8200 ) = 2000 (A)
Labour Rate Variance = ( SR * AH* ) - ( AR * AH* ) = ( 10 * 8200 ) - ( 9.8 * 8200) = 1640 ( F)
Where
SR = Standard Rate per Labour Hour
SH = Standard Hours for Actual Production = Expected time( Hrs.) for Actual Output
AH* = Actual Hour paid for
AH# = Actual hour worked for
AR = Actual rate per Lahour hours paid