Question

Crystal Charm Company makes handcrafted silver charms that attach to jewelry such as a necklace or bracelet. Each charm is adorned with two crystals of various colors. Standard costs follow: Standard Quantity Standard Price (Rate) Standard Unit Cost Silver 0.65 oz. $ 25.00 per oz. $ 16.25 Crystals 5.00 $ 0.50 crystal 2.50 Direct labor 2.00 hrs. $ 15.00 per hr. 30.00 During the month of January, Crystal Charm made 1,500 charms. The company used 935 ounces of silver (total cost of $24,310) and 7,550 crystals (total cost of $3,624.00), and paid for 3,150 actual direct labor hours (cost of $45,675.00).
Required:

1. Calculate Crystal Charm’s direct materials variances for silver and crystals for the month of January.
2. Calculate Crystal Charm’s direct labor variances for the month of January.

Answer 1

Answer:

1.

Direct Material Price Variance:

= (Standard Price - Actual Price) × Actual Quantity

Silver = [25 - (24,310 ÷ 935)] × 935

= (25 - 26) × 935  

= 935 unfavorable

Crystals = [0.50 - ($3,624 ÷ 7,550)] × 7,550

= (0.50 - 0.48) × 7,550 i.e

= 151 favorable

Direct Material Quantity Variance:

= (Standard Quantity - Actual Quantity ) × Standard Rate

Silver = ((1,500 × 0.65) - 935) × 25

         = 1,000 favorable

Charms = ((1,500 × 5) - 7,550) × 0.50

             = 25 unfavorable

2.

Direct labor rate variance :

= (Standard rate - Actual Rate) × Actual Hours

= [15 - ($45,675 ÷ 3,150)] × 3,150

= 1,575 Favorable

Direct labor efficiency variance:

= (Standard hours - Actual Hours ) × Standard rate

= [3,150 - (1,500 × 2)] × 15

= 2,250 unfavorable