Chapter 9, Problem 1E

To determine

Concept introduction:

Variances are generally the deviations of actual reports with the budget made for the business. This is determined by comparing the actual one with the budgeted goals so as to know the deviation and then the managers can take the actions which are better for eliminating the variances.

To find out:

The missing figures of the variances.

Answer to Problem 1E

Direct material price variance $=\$600\left(\text{F}\right)$

Direct material quantity variance $=\$1,050\left(\text{F}\right)$

Direct material spending variance $=\$1,650\left(\text{F}\right)$

Direct labor rate variance $=\$1,500\left(\text{F}\right)$

Direct labor efficiency variance $=\$4,000\left(\text{U}\right)$

Direct labor spending variance $=\$2,500\left(\text{U}\right)$

Explanation of Solution

Material Variances:

As per given the data:

Particular	Standard	Actual
Standard amount per can produced	$2.5\text{ lb}$	$2.4\text{ lb}$
Actual number of pans produced	$2,500$	$2,500$
Standard quantity	$6,250$	$5,000$
Price	$\$4.20\text{ per lb}$	$\$4.10\text{ per lb}$

Calculation of material price variance:

It is the difference between actual and standard price of product, and formula is

$\begin{array}{c}\text{Price variance}=\text{Acutal quantity}\times \left(\text{standard price}-\text{actual price}\right)\\ =6,000\times \left(\$4.20-\$4.10\right)\\ =\$600\left(\text{F}\right)\end{array}$

It is favorable variance. So, it is indicating that the company has paid lower price from the standard price.

Calculation of material quantity variance:

It is the nominal value difference between actual and standard quantity, and formula is

$\begin{array}{c}\text{Quantity variance}=\text{standard price}\times \left(\text{standard qty}\text{.}-\text{ actual qty}\text{.}\right)\\ =\$4.20\left(6,250-6,000\right)\\ =\$1,050\left(\text{F}\right)\end{array}$

It is also favorable variance. So, it is indicating that the company has used less quantity of raw material than the standard quantity.

Calculation of direct material spending variance:

It is the total of material price variance and material quantity variance, and formula is

$\begin{array}{c}\text{Spending variance}=\text{material price variance + material quantity variance}\\ \text{=\$600}\left(\text{F}\right)\text{+\$1,050}\left(\text{F}\right)\\ \text{=\$1,650}\left(\text{F}\right)\end{array}$

Labor variances:

As per given the data:

Particular	Standard	Actual
Standard hours per can produced	$1.10\text{ hours}$	$1.20\text{ hours}$
Actual number of pans produced	$2,500$	$2,500$
Total hours	$2,750\text{ hours}$	$3,000\text{ hours}$
Rate	$\$16\text{ per hour}$	$\$15.50\text{ per hour}$

Calculation of direct labor rate variance:

It is the comparison between standard hour late and actual hour rate with constant actual hours, and formula is:

$\begin{array}{c}\text{Labor rate variance}=\text{Actual hours}\times \left(\text{standard rate}-\text{actual rate}\right)\\ =3,000\times \left(\$16.00-\$15.50\right)\\ =\$1,500\left(\text{F}\right)\end{array}$

It is favorable. So, it is indicating that the actual hourly rate is lower from standard hourly rate.

Calculation of direct labor efficiency variance:

It is the comparison between the actual labor hours and standard labor hours with the standard hour rate, and formula is:

$\begin{array}{c}\text{Efficiency variance}=\text{standard rate per hour}\times \left(\text{standard hour}-\text{actual hour}\right)\\ =\$16.00\times \left(2,750-3,000\right)\\ =\$4,000\left(\text{U}\right)\end{array}$

It is unfavorable that means employees used more hours to produce pens.

Calculation of direct labor spending variance:

It is the total of labor rate variance and labor efficiency variance, and formula is

$\begin{array}{c}\text{Spending variance}=\text{direct labor rate variance + direct labor efficiency variance}\\ \text{=\$1,500}\left(\text{F}\right)+\left(-\$4,000\right)\left(\text{U}\right)\\ =\$2,500\left(\text{U}\right)\end{array}$