Basic Price and Quantity Variances for Labor and Materials
Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the direct costs of one unit of product. $$\begin{array} { | l r | r | r | }
\hline & \begin{array} { r }
\text { Standard } \
\text { Quantity }
\end{array} & \begin{array} { r }
\text { Standard } \
\text { Price }
\end{array} & \begin{array} { r }
\text { Standard } \
\text { Cost }
\end{array} \
\hline \begin{array} { l }
\text { Direct } \
\text { materials }
\end{array} & 8 \text { pounds } & \begin{array} { r }
\$ 1.80 \mathrm { per } \
\text { pound }
\end{array} & \$ 14.40 \
\hline \text { Direct labor } & 0.25 \text { hour } & \begin{array} { r }
\$ 8.00 \mathrm { per } \
\text { hour }
\end{array} & \underline { 2.00 } \
\hline && & \$ 16.40 \
\hline
\end{array}$$ During May, Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for May were $42,000, 90 percent of which were for direct labor. Arrow manufactured 19,000 units of product during May using 142,500 pounds of direct material and 5,000 direct labor hours.
Required:
a. Calculate the direct materials price variance for May.
b. Calculate the direct materials quantity variance for May.
c. Calculate the direct labor wage rate variance for May.
d. Calculate the direct labor efficiency variance for May.

Question

Basic Price and Quantity Variances for Labor and Materials
Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the direct costs of one unit of product. $$\begin{array} { | l r | r | r | } 
\hline & \begin{array} { r } 
\text { Standard } \
\text { Quantity }
\end{array} & \begin{array} { r } 
\text { Standard } \
\text { Price }
\end{array} & \begin{array} { r } 
\text { Standard } \
\text { Cost }
\end{array} \
\hline \begin{array} { l } 
\text { Direct } \
\text { materials }
\end{array} & 8 \text { pounds } & \begin{array} { r } 
\$ 1.80 \mathrm { per } \
\text { pound }
\end{array} & \$ 14.40 \
\hline \text { Direct labor } & 0.25 \text { hour } & \begin{array} { r } 
\$ 8.00 \mathrm { per } \
\text { hour }
\end{array} & \underline { 2.00 } \
\hline && & \$ 16.40 \
\hline
\end{array}$$ During May, Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for May were $42,000, 90 percent of which were for direct labor. Arrow manufactured 19,000 units of product during May using 142,500 pounds of direct material and 5,000 direct labor hours.
Required:
a. Calculate the direct materials price variance for May.
b. Calculate the direct materials quantity variance for May.
c. Calculate the direct labor wage rate variance for May.
d. Calculate the direct labor efficiency variance for May.

Quizplus · Accepted Answer

The Answer is a. $16,000 unfavorable ($304,000/160,000 - $1.80) × 160,000
b. $17,100 favorable (142,500 - 19,000 × 8) × $1.80
c. $2,200 favorable ($42,000 × .9 ÷ 5,000 - $8) × 5,000
d. $2,000 unfavorable (5,000 - 19,000 × .25) × $8
Notice that 17,500 pounds of material are still in inventory (160,000 pounds less 142,500). These are being carried at standard cost of $1.80 per pound. Thus, the inventory value at standard cost is $31,500 ($1.80 × 17,500).

Basic Price and Quantity Variances for Labor and Materials Arrow

Basic Price and Quantity Variances for Labor and Materials
Arrow