Direct materials: 7 microns per toy at $0.32 per micron
Direct labor: 1.2 hours per toy at $6.80 per hour
During July, the company produced 4,600 Maze toys. Production data for the month on the toy follow:
Direct materials: 70,000 microns were purchased at a cost of $0.31 per micron. 29,750 of these microns were still in inventory at the end of the month.
Direct labor: 6,020 direct labor-hours were worked at a cost of $43,344.
What is the material quantity variance, labor rate variance, and labor efficiency variance?
To find the material quantity variance, labor rate variance, and labor efficiency variance, we need to understand the calculations involved.
Material Quantity Variance:
Material Quantity Variance is calculated by finding the difference between the actual quantity of materials used and the standard quantity of materials allowed, multiplied by the standard price per unit.
The formula for Material Quantity Variance is:
Material Quantity Variance = (Actual Quantity of Materials Used - Standard Quantity of Materials Allowed) * Standard Price per Unit
Given information:
- Standard quantity of materials allowed per toy is 7 microns.
- Actual quantity of materials used is 70,000 microns.
- Standard price per unit is $0.32 per micron.
Substitute the values into the formula:
Material Quantity Variance = (70,000 - (4,600 * 7)) * $0.32
Calculate the Material Quantity Variance:
Material Quantity Variance = (70,000 - 32,200) * $0.32
Material Quantity Variance = 37,800 * $0.32
Material Quantity Variance = $12,096
Therefore, the Material Quantity Variance is $12,096.
Labor Rate Variance:
Labor Rate Variance is calculated by finding the difference between the actual labor rate applied and the standard labor rate, multiplied by the actual labor hours.
The formula for Labor Rate Variance is:
Labor Rate Variance = (Actual Labor Rate - Standard Labor Rate) * Actual Labor Hours
Given information:
- Standard labor rate is $6.80 per hour.
- Actual labor rate is not provided, so we cannot calculate the Labor Rate Variance.
Therefore, we cannot calculate the Labor Rate Variance without the actual labor rate.
Labor Efficiency Variance:
Labor Efficiency Variance is calculated by finding the difference between the actual hours worked and the standard hours allowed, multiplied by the standard labor rate.
The formula for Labor Efficiency Variance is:
Labor Efficiency Variance = (Actual Labor Hours - Standard Labor Hours) * Standard Labor Rate
Given information:
- Actual labor hours worked is 6,020 hours.
- Standard labor hours allowed per toy is 1.2 hours.
- Standard labor rate is $6.80 per hour.
Substitute the values into the formula:
Labor Efficiency Variance = (6,020 - (4,600 * 1.2)) * $6.80
Calculate the Labor Efficiency Variance:
Labor Efficiency Variance = (6,020 - 5,520) * $6.80
Labor Efficiency Variance = 500 * $6.80
Labor Efficiency Variance = $3,400
Therefore, the Labor Efficiency Variance is $3,400.
In summary, the Material Quantity Variance is $12,096, the Labor Rate Variance cannot be calculated without the actual labor rate, and the Labor Efficiency Variance is $3,400.
To calculate the material quantity variance, labor rate variance, and labor efficiency variance, we need to compare the actual costs and quantities with the standard costs and quantities.
1. Material Quantity Variance:
Material quantity variance measures the difference between standard and actual quantities of materials used. It is calculated as follows:
Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
Given data:
Actual Quantity = 70,000 microns (purchased) - 29,750 microns (ending inventory) = 40,250 microns
Standard Quantity = 4,600 toys x 7 microns per toy = 32,200 microns
Standard Price = $0.32 per micron
Material Quantity Variance = (40,250 - 32,200) x $0.32
Material Quantity Variance = 8,050 x $0.32
Material Quantity Variance = $2,576
The material quantity variance is $2,576 (favorable) because the actual quantity used was less than the standard quantity.
2. Labor Rate Variance:
Labor rate variance measures the difference between the actual labor cost per hour and the standard labor cost per hour, multiplied by the actual labor hours. It is calculated as follows:
Labor Rate Variance = (Actual Rate - Standard Rate) x Actual Hours
Given data:
Actual Rate = $6.80 per hour
Standard Rate = $6.80 per hour
Actual Hours = 6,020 hours
Labor Rate Variance = ($6.80 - $6.80) x 6,020
Labor Rate Variance = $0 x 6,020
Labor Rate Variance = $0
The labor rate variance is $0 because the actual labor rate was the same as the standard labor rate.
3. Labor Efficiency Variance:
Labor efficiency variance measures the difference between the actual labor hours used and the standard labor hours allowed, multiplied by the standard labor rate. It is calculated as follows:
Labor Efficiency Variance = (Actual Hours - Standard Hours) x Standard Rate
Given data:
Actual Hours = 6,020 hours
Standard Hours = 4,600 toys x 1.2 hours per toy = 5,520 hours
Standard Rate = $6.80 per hour
Labor Efficiency Variance = (6,020 - 5,520) x $6.80
Labor Efficiency Variance = 500 x $6.80
Labor Efficiency Variance = $3,400
The labor efficiency variance is $3,400 (favorable) because fewer labor hours were used than the standard allowed.
To summarize:
- Material Quantity Variance = $2,576 (favorable)
- Labor Rate Variance = $0
- Labor Efficiency Variance = $3,400 (favorable)