Exercise-4 (Materials price and quantity variance; labor rate and efficiency variance)

P&G company produces large size bags for the use of tourists. Company uses standard costing system to control costs. The standards for materials and labor costs to manufacture 1 bag are as follows:

  • Direct materials: 7.2 lbs. @ $5 per lb.
  • Direct labor: 0.4 hours @ $20 per hour

During the last month, P&G produced 2,500 large bags. 20,000 lbs. of direct materials were purchased @ $4.8 per lb. There was no direct materials inventory at the beginning and at the end of the month. 900 direct labor hours were recorded @ $24 per hour.

Required:

  1. Compute direct materials price and quantity variance.
  2. Compute direct labor rate and efficiency variance.

Solution:

(1) Materials variances:

exercise-4-scava-img1

exercise-4-scava-img2

*2500 bags × 7.2 lbs = 18,000 lbs

(2) Labor Variances:

exercise-4-scava-img3

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*2,500 bags × 0.4 hours = 1,000 hours

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