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The standards for one carton of Flavor Rite are: Direct materials 3
The standards for one carton of Flavor Rite are:
Direct materials 3.2 lbs. @ $6.00/lb.Direct labor 2.4 hrs. @ $10.00/hr.
During the week ended May 17, the following activity took place:
- 4,800 lbs. of raw material were purchased for inventory at a cost of $5.60 per pound;
- 1,200 cartons of finished product were produced;
- 4,020 lbs. of raw material were used;
- 3,110 labor hours were worked at a total cost of $26,435.
Calculate each of the following variances:(a.)Raw materials purchase price variance.(b.)Raw materials usage variance.(c.)Direct labor rate variance.(d.)Direct labor efficiency variance.(e.)Explain the factors that most likely caused the variances computed above.
Expert Solution
a) Raw Material Purchase Price Variance:
Raw Material Purchase Price Variance = Actual Quantity Purchased * (Standard Price - Actual Price)
= 4,800 * ($6 - $5.60)
= 4,800 * $0.40
Raw Material Purchase Price Variance = $1,920 (Favorable)
b) Raw Material Usage Variance:
Raw Material Usage Variance = Standard Price * (Standard Quantity - Actual Quantity)
= $6 * ((3.2*1,200) - 4,020)
= $6*(3,840 - 4,020)
= $6*-180
Raw Material Usage Variance = -$1,080
So, Raw Material Usage Variance is $1,080 Unfavorable.
c) Direct Labor Rate Variance:
Direct Labor Rate Variance = Actual Hours * (Standard Rate - Actual Rate)
= 3,110 * ($10 - ($26,435/3,110))
= 3,110*($10 - $8.5)
= 3,110*$1.5
Direct Labor Rate Variance = $4,665 Favorable
d) Direct Labor Efficiency Variance:
Direct Labor Efficiency Variance = Standard Rate * (Actual Hours - Standard Hours)
= $10 * (3,110 - (1,200*2.4))
= $10 * (3,110 - 2,880)
= $10 * 230
Direct Labor Efficiency Variance = $2,300 Unfavorable
e) In Material Variance Rate of Material Purchase and Quantity Used factors caused the variances. In Labor Variance Rate of Labor Paid and Efficiency of Labor factors caused the variances.
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