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Craft Brewery Co
Craft Brewery Co. manufactures specialized beer. Each batch requires 4 kilograms of barley and takes .3 hours of direct labour. The standard cost of the barley used by Craft Brewery is $8 per kilogram and the standard labour cost is $10 per hour. In November, Craft Brewery purchased 15,000 kilograms of barley for $120,750. During the year, the company manufactured 4,000 bottles. Payroll reported a total of 1,480 direct labour hours at a cost of $14,060.
Instructions
a. Calculate the materials price and quantity variances and indicate whether the variances are favourable or unfavourable.
b. Calculate the labour price and quantity variances and indicate whether the variances are favourable or unfavourable.
Expert Solution
a. Computation of Materials Price and Quantity Variances:
Material Variances :
Material Price Variance = (Standard Rate - Actual Rate) * Actual Quantity
= [$ 8.00 - ($ 120,750 / 15,000)] * 15,000
= [$ 8.00 - $8.05] * 15,000
Material Price Variance = $750 Unfavorable
Material Quantity Variance:
Material Quantity Variance = (Standard Quantity - Actual Quantity) * Standard Rate
= [(4,000 * 4) - 15,000] * $8
= [16,000 - 15,000] * $8
Material Quantity Variance = $8,000 Favorable
b. Computation of Labor Price and Quantity Variances:
Labor Variances :
Labor Price Variance = (Standard Rate - Actual Rate) * Actual Hours
= [$10.00 - ($14,060 / 1,480)] * 1,480
= [$10.00 - $9.50] * 1,480
Labor Price Variance = $740 Favorable
Labor Efficiency Variance:
Labor Efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate
= [(4,000 * 0.3) - 1,480] * $10
= [1,200 - 1,480] * $10
Labor Efficiency Variance = $ 2,800 Unfavorable.
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