Asked by Jackson Hooper on May 13, 2024
Verified
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 9500 tybos would be produced in March. Riggins has established the following material and labor standards to produce one tybo: Standard Quantity Standard Price Direct materials 2.5 pounds $3 per pound Direct labor 0.6 hours $10 per hour \begin{array}{lcc}&\text { Standard Quantity}&\text { Standard Price }\\\text { Direct materials } & 2.5 \text { pounds } & \$ 3 \text { per pound } \\\text { Direct labor } & 0.6 \text { hours } & \$ 10 \text { per hour }\end{array} Direct materials Direct labor Standard Quantity2.5 pounds 0.6 hours Standard Price $3 per pound $10 per hour During March 2016 the following activity was recorded by the company relating to the production of tybos:
1. The company produced 9000 units during the month.
2. A total of 24000 pounds of materials were purchased at a cost of $66000.
3. A total of 24000 pounds of materials were used in production.
4. 5000 hours of labor were incurred during the month at a total wage cost of $55000.
Instructions
Calculate the following variances for March for Riggins Inc.
(a) Materials price variance
(b) Materials quantity variance
(c) Labor price variance
(d) Labor quantity variance
Labor Price Variance
The difference between the actual cost of labor and the budgeted or standard cost of labor, used in budgeting and cost management.
Materials Quantity Variance
The difference between the actual quantity of materials used in production and the expected amount, which can indicate efficiency or waste.
Standard Price
The predetermined cost assigned to materials, labor, and overhead, used in budgeting and variance analysis.
- Attain insight into and perform calculations related to variances in material prices and quantities.
- Develop skills to analyze and quantify variations in labor metrics, including quantity, price, and total cost.
Verified Answer
= (Actual quantity purchased × Actual price) - (Actual quantity purchased × Standard price)
= (24000 × $2.75) - (24000 × $3) = $6000 favorable
(b) Materials quantity variance
= (Actual quantity used × Standard price) - (Standard quantity × Standard price)
= (24000 × $3) - [(9000 × 2.5) × $3] = $4500 unfavorable
(c) Labor price variance
= (Actual hours x Actual rate) - (Actual hours × Standard rate)
= (5000 × $11) - (5000 × $10) = $5000 unfavorable
(d) Labor quantity variance = (Actual hours × Standard rate) - (Standard hours × Standard rate) = (5000 × $10) - [(0.6 × 9000) × $10] = $4000 favorable
Learning Objectives
- Attain insight into and perform calculations related to variances in material prices and quantities.
- Develop skills to analyze and quantify variations in labor metrics, including quantity, price, and total cost.
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