Alpha Sports Company manufactures high quality sports products. Products are sold in the local as well as international markets. The company uses a well established standard costing system to control costs. One of the products of Alpha Supports Company is a cricket bat. The standard requirements to manufacture one bat are as follows:

Direct materials: 5 feet wood @ $0.60 per foot
Direct labor: 1.2 hours @ $14 per hour

During the last month, Alpha manufactured 4,000 cricket bats. 50,000 feet wood was purchased @ 0.56 per foot. 20,000 feet wood was in stock at the end of the month. 6,400 direct labor hours were worked @ $15 per hour.

Required:

  1. Compute direct materials price and quantity variances.
  2. Compute direct labor rate and efficiency variances.
  3. Explain the significance and possible causes of each variance.

 Solution:

(1) Materials price and quantity variance:

(50,000* × $0.56) – (50,000 × $0.6)

$28,000 – $30,000

$2000 Favorable

(30,000 × $0.6) – (20,000 × $0.6)

$18,000 – $12,000

$6,000 Unfavorable

(2) Direct labor rate and efficiency variance:

(6,400 × $15) – (6,400 × $14)

$96,000 – $89,600

$6,400 Unfavorable

(6,400 × $14) – (4,800 × $14)

$89,600 – $67,200

22,400 Unfavorable

(3) Significance and possible causes of variances:

Significance and causes of variances have been explained in “Explanation” section. Please click on “Explanation” from the top horizontal menu and then click on standard costing and variance analysis.