Chapter 9, Problem 12E

Direct materials and direct labor variances

At the beginning of June, Bezco Toy Company budgeted 5,000 toy action figures to be manufactured in June at standard direct materials and direct labor costs as follows:

The standard materials price is $4.00 per pound. The standard direct labor rate is $18.00 per hour. At the end of June, the actual direct materials and direct labor costs were as follows:

There were no direct materials price or direct labor rate variances for June. In addition, assume no changes in the direct materials inventory balances in June. Bezco Toy Company actually produced 4,850 units during June.

Determine the direct materials quantity and direct labor time variances.

To determine

Ascertain the direct materials quantity variance and the direct labor time variances.

Explanation of Solution

Direct materials quantity variances:

The difference between the actual quantity and the standard quantity multiplied by the standard price is known as direct material quantity variance. When the actual quantity exceeds the standard quantity, the variance is unfavorable. Similarly, when the actual quantity is less than the standard quantity, the variance is favorable.

Direct labor time variance:

Direct labor time variance is the difference between actual direct labor hours, and the standard direct labor hours multiplied by standard rate per hour. When the actual direct labor hours exceeds the standard direct labor hours, the variance is unfavorable. Similarly, when the actual direct labor hour is less than the standard direct labor hour, the variance is favorable.

The direct materials quantity variance and the direct labor time variances are determined as follows:

(a) Determine the standard direct materials and direct labor per unit.

Working notes:

(1)Determine the standard direct materials quantity per unit:

  $\begin{array}{c}\begin{array}{l}\text{Standard direct}\\ \text{materials lb}\text{. for June}\end{array}\}\text{ =}\frac{\text{Direct materials}}{\text{Standard price}}\\ \text{ =}\frac{\text{\$50,000}}{\text{\$4}\text{.00 per}\text{lb}.}\\ \text{ =12,500}\text{lb}\text{.}\end{array}$

(2)Determine the standard pounds per unit:

  $\begin{array}{c}\text{Standard pounds per unit}\}\text{ = }\left[\frac{\text{Standard direct materials lb}\text{.(1)}}{\text{Standard units}}\right]\\ \text{=}\frac{\text{\$ 12,500 lb}\text{.}}{\text{5,000 units}}\\ \text{=\$ 2}\text{.50 lb}\text{. per unit}\end{array}$

(3)Determine the standard direct labor time per unit:

  $\begin{array}{c}\begin{array}{l}\text{Standard direct}\\ \text{labor hrs}\text{. for June}\end{array}\}\text{ = }\left[\frac{\text{Actual direct labor}}{\text{Standard direct labor rate}}\right]\\ \text{ =}\frac{\text{\$36,000}}{\text{\$18}\text{.00 per}\text{hr}\text{.}}\\ \text{ =2,000}\text{hrs}\text{.}\end{array}$

(4)Determine the standard direct labor hours per unit:

  $\begin{array}{c}\begin{array}{l}\text{Standard direct}\\ \text{labor hours per unit}\end{array}\}\text{ = }\left[\frac{\text{Standard direct labor hrs}\text{. (3)}}{\text{ Standard units }}\right]\\ \text{ =}\frac{\text{2,000 hrs}\text{. }}{\text{5,000 units}\text{.}}\\ \text{ =0}\text{.40 hr}\text{. per unit}\end{array}$

(b) To determine the standard costs for the actual June production, using the standard quantity and time rates in (a).

(5)Determine units of actual direct materials:

  $\begin{array}{c}\begin{array}{l}\text{Standard diretct material}\\ \text{at actual volume}\end{array}\}\text{ =}\left[\begin{array}{l}\text{Actual units produced × Standard}\\ \text{lb}\text{. per unit× Standard material price}\end{array}\right]\\ \text{=4,850 units × 2}\text{.5lb}\text{. (2) × \$4}\text{.00}\\ \text{=\$48,500}\end{array}$

(6)Determine units of actual direct materials:

  $\begin{array}{c}\begin{array}{l}\text{Standard diretct labor}\\ \text{at actual volume}\end{array}\}\text{ =}\left[\begin{array}{l}\text{Actual units produced × Standard direct}\\ \text{labor hr}\text{.per unit (4)× Standard labor rate}\end{array}\right]\\ \text{=4,850 units × 0}\text{.4 hr}\text{. × \$18}\text{.00}\\ \text{=\$34,920}\end{array}$

Therefore, the total standard costs for the actual June production is $\left[\text{\$48,500 (5) + \$34,920 (6)}\right]$ $83,420.

(c) Determine the direct materials quantity and direct labor time variance:

The direct materials quantity variance is determined as follows:

  $\begin{array}{c}\text{Direct materials quantity variance = }\left[\left(\begin{array}{l}\text{Actual quantity}-\\ \text{Standard quantity}\end{array}\right)\text{× Standard price}\right]\\ \text{=}\left[\left(\text{12,400 lb}\text{. (7)}-12\text{,125 lb}\text{. (7)}\right)\text{× \$4}\text{.00}\right]\\ \text{=\$}275\times \$4.00\\ \text{=\$}1,100\end{array}$

Working notes:

(7)Determine the actual quantity:

  $\begin{array}{c}\text{Actual quantity =}\left[\frac{\text{Actual direct materials}}{\text{Standard material price}}\right]\\ \text{=}\frac{\text{\$49,600}}{\text{\$4}\text{.00}}\\ \text{=12,400 lbs}\text{.}\end{array}$

  $\begin{array}{c}\text{Standard quantity =}\frac{\text{Standard diretct materialat actual volume}}{\text{Standard material price}}\\ \text{=}\frac{\text{\$48,500}}{\text{\$4}\text{.00}}\\ \text{=12,125 lbs}\text{.}\end{array}$

Therefore, the direct labor time variance is $1,100 and it is a unfavorable variance. Since the actual quantity is less than the standard quantity.

The direct labor time variance is determined as follows:

  $\begin{array}{c}\begin{array}{l}\text{Direct labor }\\ \text{time variance}\end{array}\}\text{ = }\left[\left(\begin{array}{l}\text{Actual hours}-\text{Standard}\\ \text{direct labor hours }\end{array}\right)\text{× Standard rate per hour}\right]\\ =\left[\left(\text{\$1,890 (10)}-\text{\$1,940 hours (9)}\right)\text{× \$ 18}\text{.00}\right]\\ \text{=\$}-\text{50 × \$ 18}\text{.00}\\ \text{=\$ (900)}\end{array}$

(9)Determine the standard direct labor hours:

  $\begin{array}{c}\begin{array}{l}\text{Standard direct }\\ \text{labor hours}\end{array}\}\text{ = No of units required ×Stanadard hours per units}\\ \text{= 4,850 units × 0}\text{.40 hours}\\ \text{=1,940 hours}\end{array}$

(10)Determine the accrual labor hours:

  $\begin{array}{c}\begin{array}{l}\text{Actual }\\ \text{labor hours}\end{array}\}\text{ = }\frac{\text{Actual direct labor (6)}}{\text{Standard material price}}\\ \text{= }\frac{\text{\$34,020}}{\text{\$4}\text{.00}}\\ \text{=1,890 hrs}\end{array}$ (10)

Therefore, direct labor time variance is $(9,000) and it is a favorable variance. Since the actual direct labor hour is less than the standard direct labor hour.