Caribe Ltd. Is involved in the production of 100 units of product wingo. The tot
ID: 2570420 • Letter: C
Question
Caribe Ltd. Is involved in the production of 100 units of product wingo. The total standard cost for material and direct labour on this job are shown below
Direct Materials: Standard Actual
Standard: 780 pounds @$7.00 per pound $ 5,460
Actual: 820 pounds @ 7.10 per pound $5,822
Direct Labour:
Standard: 320 hours @22 per hour $ 7,040
Actual: 300 hours @23 per hour $6,900
Required:
a) Compute the following cost variances for wingo and indicate whether each variance is favourable or unfavourable .
i) Material price variance
ii) Material quantity variance
iii) Labour rate variance
iv) Labour efficiency variance
b) Critically discuss the use of variance by managers in organizations
Explanation / Answer
i)
Material price variance = Actual quantity×Standard cost per unit-Actual cost
= 820×$7-$5,822
= 82 unfavorable
ii)
Material quantity variance:
= Standard quantity×Standard cost per unit- Actual quantity×Standard cost per unit
= $5,460-820×$7
= $280 unfavorable
iii)
Labor rate variance:
= Actual hours×Standard rate- Actual labor paid
= 300×$22-$6,900
= $300 unfavorable
iv)
Labor efficiency variance:
= Standard hours×Standard rate- Actual hours×Standard rate
= $7,040-300×$22
= $440 favorable