Answer:
- $1502
- 300 pounds
- labor rate variance: $1.50 per hour (unfavorable); efficiency variance: 0.25 units/hour (favorable)
Step-by-step explanation:
1. The material cost is the cost per pound multiplied by the number of pounds used.
Planned material cost: (18,500 lb)($2.50 /lb) = $46,250
Actual material cost: (18,800 lb)($2.54 /lb) = $47,752
Material cost variance: $47,752 -46,250 = $1,502 . . . (unfavorable)
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2. The material quantity is ...
Planned: 18,500 lb
Actual: 18,800 lb
Material quantity variance: 18,800 -18,500 = 300 . . . pounds (unfavorable)
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3. The direct labor rate is the labor cost divided by the labor hours.
Planned labor rate: $16.50 per hour
Actual labor rate: $360,000/(20,000 h) = $18.00 per hour
Labor rate variance: $18.00 -16.50 = $1.50 . . . per hour (unfavorable)
The efficiency is assumed to be measured in units per hour of labor.
Planned efficiency: (1 unit)/(0.5 h) = 2 units/h
Actual efficiency: (45,000 units)/(20,000 h) = 2.25 units/h
Efficiency variance: 2.25 -2.00 = 0.25 . . . units/h (favorable)
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<em>Additional comment</em>
Question 1 asks for the price variance, not the cost variance. The price is given in terms of dollars per pound. The variance in price per pound would be $2.54 -2.50 = $0.04 (unfavorable). We assumed the more interesting number is the cost variance, which takes into account the material quantity used.
Efficiency is usually measured in terms of useful output for a given input. For example, auto efficiency is measured in the US in terms of miles per gallon. Hence units per hour would be an appropriate efficiency measure. (Higher is better.)
In some instances, efficiency is measured in terms of the input required to obtain a given output. For example, auto efficiency is measured in metric countries in terms of liters per 100 kilometers. In that sense, the efficiency measure would be hours per unit. (Lower is better.)
