Question

Riggins, Inc. manufactures one product called tybos. The company uses a standard cost system and sells each tybo for $8. At the start of monthly production, Riggins estimated 9,500 tybos would be produced in March. Riggins has established the following material and labor standards to produce one tybo:
Particulars Standard quantity Standard price
Direct materials 2.5 pounds $3 per pound
Direct labor 0.6 hours $10 per hour
During March 2013, the following activity was recorded by the company relating to the production of tybos:
1. The company produced 9,000 units during the month.
2. A total of 24,000 pounds of materials were purchased at a cost of $66,000.
3. A total of 24,000 pounds of materials were used in production.
4. 5,000 hours of labor were incurred during the month at a total wage cost of $55,000.
Instructions:
Calculate the following variances for March for Riggins, Inc.. Identify whether the variance is favorable or unfavorable.
a. Materials price variance
b. Materials quantity variance
c. Labor price variance
d. Labor quantity variance

Answer 1

Answer:

Riggins, Inc.

a. Material price variance

= $450 F

b. Material quantity variance

= $750 U

c. Labor price variance

= $550 U

d. Labor quantity variance

= $7,000 F

Explanation:

a) Data and Calculations:

Selling price of tybo per unit = $8

Estimated production units in March = 9,500

Standard material and labor costs:

Particulars        Standard          Standard          Standard

                          quantity           price                 per unit

Direct materials 2.5 pounds    $3 per pound   $7.50

Direct labor        0.6 hours       $10 per hour    $6.00

Actual production units in March = 9,000

Actual materials and labor costs:

Actual results:

Purchase of materials, 24,000 pounds = $66,000

Production usage = 24,000 pounds

Total labor hours = 5,000

Total wage cost = $55,000

Particulars              Actual             Actual            Actual Cost

                            quantity             price               per unit

Direct materials 2.67 pounds   $2.79 per pound  $7.45

Direct labor        0.555 hours   $11 per hour          $6.11

Material price variance = (Standard price - Actual price) * Actual quantity

= ($7.50 - $7.45) * 9,000

= $450 F

Material quantity variance = (Standard Qty - Actual Qty) * Standard Price

= (23,750 - 24,000) * $3

= $750 U

Labor price variance = (Standard price - Actual price) * Actual hours

= ($6.00 - $6.11) * 5,000

= $550 U

Labor quantity variance =  (Standard Qty - Actual Qty) * Standard Price

= (5,700 - 5,000) * $10

= 700 * $10

= $7,000 F