Timber Enterprises purchased 67,000 pounds (cost = $616,400) of direct material to be used in the manufacture of the company's only product. According to the production specifications, each completed unit requires four pounds of direct material at a standard cost of $9 per pound. Direct materials consumed by the end of the period totaled 65,500 pounds in the manufacture of 16,050 finished units.An examination of Timber's payroll records revealed that the company worked 42,000 labor hours (cost = $621,600) during the period, and specifications called for each completed unit requiring 2.6 hours of labor at a standard cost of $15 per hour.Assume that the company computes variances at the earliest point in time.Required: Calculate the direct-material price and quantity variances, and the

Question

direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

What will be an ideal response?

Answer 1

Direct Material Price Variance: 65,500 × ($9.20* - $9.00) = $13,100 U
*Purchase Price: $616,400 / 67,000 pounds = $9.20 per pound

Direct Material Quantity Variance: (65,500 - 64,200*) × $9.00 = $11,700 U
*Standard Quantity = 16,050 units × 4 pounds = 64,200 pounds

Direct Labor Rate Variance: ($14.80 - $15.00) × 42,000 hours = $8,400 F

Direct Labor Efficiency Variance: (42,000 - 41,730*) × $15.00 = $4,050 U
*Standard Hours = 16,050 units × 2.6 hours = 41,730 hours