Answer:
Yes
Explanation:
Direct Material Usage Variance is the measure of difference between the actual quantity of material utilized during a period and the standard consumption of material for the level of output achieved.
Formula
Direct Material Price Variance:
Actual Quantity x Standard Price - Standard Quantity x Standard Price = Standard Cost of Actual Quantity - Standard Cost of Standard Quantity
=(Actual Quantity - Standard Quantity) x Standard Price
Since the effect of any variation in material price from the standard is calculated in the material price variance, material usage variance is calculated using the standard price.
Example
: Cement PLC manufactured 10,000 bags of cement during the month of January. Consumption of raw materials during the period was as follows:
Material Quantity Used Standard Usage Per Bag Actual Price Standard Price
Limestone 100 tons 11 KG $75/ton $70/ton
Clay 150 tons 14 KG $21/ton $20/ton
Sand 250 tons 26 KG $11/ton $10/ton
Material Usage Variance will be calculated as follows:
Step 1: Calculate Standard Quantity
Limestone: 10,000 units x 11 / 1000 = 110 tons
Clay: 10,000 units x 14 / 1000 = 140 tons
Sand: 10,000 units x 26 / 1000 = 260 tons
Step 2: Calculate the Variance
Material Usage Variance = [Actual Quantity - Standard Quantity (Step 2)] x Standard Price
Limestone: (100 - 110) x $70 = ($700) Favorable
Clay: (150 - 140) x $20 = $200 Adverse
Sand: (250 - 260) x $10 = ($100) Favorable
Total Usage Variance ($600) Favorable
Direct Labor Efficiency Variance is the measure of difference between the standard cost of actual number of direct labor hours utilized during a period and the standard hours of direct labor for the level of output achieved.
Formula
Direct Labor Efficiency Variance:
= Actual Hours x Standard Rate - Standard Hours x Standard Rate
= Standard Cost of Actual Hours - Standard Cost
Note: As the effect of difference between standard rate and actual rate of direct labor is accounted for separately in the direct labor rate variance, the efficiency variance is calculated using the standard rate.
Example
DM is a denim brand specializing in the manufacture and sale of hand-stitched jeans trousers.
DM manufactured and sold 10,000 pairs of jeans during a period.
Information relating to the direct labor cost and production time per unit is as follows:
Actual Hours
Per Unit Standard Hours
Per Unit Actual Rate
Per Hour Standard Rate
Per Hour
Direct Labor 0.50 0.60 $12 $10
Labor rate variance shall be calculated as follows:
Step 1: Calculate Actual hours
Actual Hours = 10,000 units x 0.5 hours per unit
= 5,000 hours.
Step 2: Calculate the standard cost of actual number of hours
Standard Cost of Actual Hours = Actual Hours x Standard Rate
= 5,000 hours (Step 1) x $10 per hour
= $50,000.
Step 3: Calculate the standard hours
Standard hours = 10,000 units x 0.60 hours per unit
= 6,000 hours.
Step 4: Calculate the standard cost
Standard Cost = Standard Hours x Standard Rate
= 6,000 hours (Step 3) x $10 per hour
= $60,000.
Step 5: Calculate the variance
Labor Efficiency Variance = Standard Cost of Actual Hours - Standard Cost
= $50,000 (Step 2) - $60,000 (Step 4)
= $10,000 Favorable.
