ABC Company manufactures purple widgets. The company has established a total standard cost for direct material and direct labor of $244.33 per widget. The total standard cost includes 21.5 pounds of direct materials at a standard cost of $10.50 per pound and 3.45 hours of direct labor at a wage rate of $8.50 per hour. The following data pertain to April: The company purchased 500,000 pounds of material, 90% of the material purchased was used for direct materials. The total cost of the direct materials was $4,050,000. The total amount paid for direct labor was $600,750. The actual direct labor hours worked was 67,500 hours. The company actually produced 20,000 widgets for the month of April a) Calculate the Total Direct Materials Variance b) Calculate the Total Direct Labor Variance c) Explain who is in the best position in the organization to influence each of these variances. 1) Direct Materials Price Variance 2) Direct Materials Quantity Variance 3) Direct Labor Rate Variance 4) Direct Labor Time Variance

Question

ABC Company manufactures purple widgets. The company has established a total standard cost for direct material and direct labor of $244.33 per widget. The total standard cost includes 21.5 pounds of direct materials at a standard cost of $10.50 per pound and 3.45 hours of direct labor at a wage rate of $8.50 per hour. The following data pertain to April:  The company purchased 500,000 pounds of material, 90% of the material purchased was used for direct materials.  The total cost of the direct materials was $4,050,000.  The total amount paid for direct labor was $600,750.  The actual direct labor hours worked was 67,500 hours.  The company actually produced 20,000 widgets for the month of April  a) Calculate the Total Direct Materials Variance  b) Calculate the Total Direct Labor Variance  c) Explain who is in the best position in the organization to influence each of these variances.  1) Direct Materials Price Variance   2) Direct Materials Quantity Variance   3) Direct Labor Rate Variance   4) Direct Labor Time Variance

maul124uk · Accepted Answer

Step 1  Total Direct Material Variance=Standard Quantity for Actual Output×Standard rate−Actual Quantity×actual Rate  Total Direct Labour Variance=Standard Labour hours for Actual Production×Standard rate per hour−Actual Hours×Actual rate  Step 2  Total Direct Material Variance=  Standard Quantity for Actual output =20000×21.5=430000 Pounds  Standard Rate =10.50  Actual Cost of material =4,050,000  Total Direct Material Variance =430000×10.50−4050000  Total Direct Material Variance =4515000−4050000  Total Direct Material Variance =465000 Favorable  Explanation: As Actual Cost of Material Used is less than the standard Cost of Material, The Material Variance is Favorable.  Step 3  Total Direct Labour Variance=  Standard Hours for Actual output =20000×3.45hours=69000hours  Standard rate =8.50  Actual Cost of Labour =600750  Total Direct Labour Variance =69000×8.50−600750  Total Direct Material Variance =586500−600750  Total Direct Material Variance =14250 Adverse  Explanation: As actual cost of labour is more than the standard cost, The total direct labour variance is Adverse  Step 4  Who are Responsible for Variance  PARTICULARPERSON RESPONSIBLEDirect Materials Price VariancePurchase ManagerDirect Materials Quantity VarianceProduction ManagerDirect Labor Rate VarianceHR DepartmentProduction DepartmentDirect Labor Time VarianceProduction Department  Direct Labour rate Variance: HR department is responsible however if there is no HR department then Production manager will be responsible as he has to hire the workers keeping in mind the cost of labour, and overall cost of product.

Mason Hall · Accepted Answer

Step 1  Direct Materials cost variance=Standard cost of materials−Actual cost of materials  =(21.5×10.5×20,000)−(40,50,000×90%)  =4515,000−3645000  =$870,000(Favourab≤)  Direct Labour cost variance=Standard cost of labour−Actual cost of labour  =(3.45×8.5×20,000)−600,750  =$14250(Unfavourab≤)  Step 2  Unfavourable direct materials price variance means variance in standard cost and actual cost due to standard price is less than actual price of materials  Favorable Direct Materials Quantity Variance means variance in standard cost and actual cost due to standard quantity used is more than actual quantity cost.  Favourable total direct materials cost variance in standard cost and actual cost when standard costs of materials are more than actual cost of materials.  Favorable Direct Labor Rate Variance means variance in standard labour cost and actual labour cost when actual labour rate is less than standard rate.  Unfavorable Direct Labor Time Variance means variance in standard labour cost and actual labour cost when actual labour hours are more than standard labour hours.  Unfavorable Total Direct Labor Variance means variance in standard labour cost and actual labour cost when actual cost of labour is more than standard labour cost.

ABC Company manufactures purple widgets. The company has est

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