Q3TI - Horngren'S Financial And Managerial Accounting

Question

Question: Tipton Company manufactures shirts. During June, Tipton made 1,200 shirts and gathered the following additional data: 

Direct materials cost standard \(6.00 per yard of fabric 

Direct materials efficiency standard 1.50 yards per shirt 

Actual amount of fabric purchased and used 1,680 yards 

Actual cost of fabric purchased and used \)10,500 

Direct labor cost standard \(15.00 per DLHr 

Direct labor efficiency standard 2.00 DLHr per shirt 

Actual amount of direct labor hours 2,520 DLHr 

Actual cost of direct labor \)36,540 

Calculate the following variances: 

7. Direct materials cost variance 

8. Direct materials efficiency variance 

9. Total direct materials variance 

10. Direct labor cost variance 

11. Direct labor efficiency variance 

12. Total direct labor variance

 

Step-by-Step Solution

Answer

Answer

7.The direct material cost variance is $420 U.

8.The direct material efficiency variance is $720 F

9. Total direct material variance is $300 F.

10.The direct labor cost variance is $420 U.

11.The direct labor efficiency variance is $1,800 U.

12. Total direct labor variance is $540 U

Step 1 Computation of direct material cost variance

$$\begin{gathered} \mathbf{Actualcostperyard}\mathbf{=}\frac{\mathbf{Actualcostoffabricpurchasedandused}}{\mathbf{Actualquantityoffabricpurchasedandused}} \\ \mathbf{=}\frac{\mathbf{10}\mathbf{,}\mathbf{500}}{\mathbf{1}\mathbf{,}\mathbf{680}} \\ \mathbf{=}\mathbf{\$}\mathbf{6}\mathbf{.}\mathbf{25}\mathbf{peryard} \end{gathered}$$

Actual cost (AC) is $6.25.

Standard cost (SC) is $6.

Actual quantity (AQ) is 1,680

 $$\begin{gathered} \mathbf{DirectMaterialCostVariance}\mathbf{=}\left(\mathbf{AC}\mathbf{-}\mathbf{SC}\right)\mathbf{\times }\mathbf{AQ} \\ \mathbf{=}\left(\$\mathbf{6}\mathbf{.}\mathbf{25}\mathbf{-}\$\mathbf{6}\right)\mathbf{\times }\mathbf{1}\mathbf{,}\mathbf{680} \\ \mathbf{=}\mathbf{\$}\mathbf{420}\mathbf{U} \end{gathered}$$

Step 2 Computation of direct material efficiency variance

$$\begin{gathered} \mathbf{StandardQuantity}\mathbf{=}\mathbf{Directmaterialsefficiencystandard}\mathbf{\times }\mathbf{Numberofshirtsproduced} \\ \mathbf{=}\mathbf{1}\mathbf{.}\mathbf{5}\mathbf{\times }\mathbf{1}\mathbf{,}\mathbf{200} \\ \mathbf{=}\mathbf{1}\mathbf{,}\mathbf{800}\mathbf{shirts} \\ \mathbf{DirectMaterialEfficiencyVariance}\mathbf{=}\left(\mathbf{AQ}\mathbf{-}\mathbf{SQ}\right)\mathbf{\times }\mathbf{SC} \\ \mathbf{=}\left(\mathbf{1}\mathbf{,}\mathbf{680}\mathbf{-}\mathbf{1}\mathbf{,}2\mathbf{00}\times 1.5\right)\mathbf{\times }\mathbf{6} \\ \mathbf{=}\mathbf{\$}\mathbf{720}\mathbf{F} \\ T\mathbf{otaldirectMaterialVariance}\mathbf{=}\mathbf{DirectMaterialcostVariance}+\mathbf{DirectMaterialEfficiencyVariance} \\ \mathbf{=}\left(\mathbf{420}\mathbf{U}\right)+\mathbf{720}\mathbf{F} \\ \mathbf{=}\mathbf{\$}\mathbf{300} \end{gathered}$$

Step 4 Computation of direct labor cost variance

$$\begin{gathered} \mathbf{Actualcostperdirectlaborhour}\mathbf{=}\frac{\mathbf{Actualcostofdirectlabor}}{\mathbf{Actualnumberofdirectlaborhours}} \\ \mathbf{=}\frac{\mathbf{36}\mathbf{,}\mathbf{540}}{\mathbf{2}\mathbf{,}\mathbf{520}} \\ \mathbf{=}\mathbf{\$}\mathbf{14}\mathbf{.}\mathbf{50}\mathbf{perDLHr} \\ \mathbf{Directlaborcostvariance}\mathbf{=}\left(\mathbf{AC}\mathbf{-}\mathbf{SC}\right)\mathbf{\times }\mathbf{AQ} \\ \mathbf{=}\left(\mathbf{14}\mathbf{.}\mathbf{50}\mathbf{-}\mathbf{15}\mathbf{.}\mathbf{00}\right)\mathbf{\times }\mathbf{2}\mathbf{,}\mathbf{520} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{260} \end{gathered}$$

Step 5 Computation of direct labor efficiency variance

$$\begin{gathered} \mathbf{StandardQuantity}\mathbf{=}\mathbf{Directlaborefficiencystandard}\mathbf{\times }\mathbf{Numberofshirtsproduced} \\ \mathbf{=}\mathbf{2}\mathbf{\times }\mathbf{1}\mathbf{,}\mathbf{200} \\ \mathbf{=}\mathbf{2}\mathbf{,}\mathbf{400}\mathbf{DLHr} \\ \mathbf{DirectLaborefficiencyvariance}\mathbf{=}\left(\mathbf{AQ}\mathbf{-}\mathbf{SQ}\right)\mathbf{\times }\mathbf{SC} \\ \mathbf{=}\left(\mathbf{2}\mathbf{,}\mathbf{520}\mathbf{-}\mathbf{2}\mathbf{,}\mathbf{400}\right)\mathbf{\times }\mathbf{15}\mathbf{.}\mathbf{00} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{800}\mathbf{U} \end{gathered}$$

Step 6 Computation of Total direct labor variance

$$\begin{gathered} \mathbf{Totaldirectlaborvariance}\mathbf{=}\mathbf{Directlaborcostvariance}+\mathbf{Directlaborefficiencyvariance} \\ \mathbf{=}\mathbf{1}\mathbf{,}\mathbf{260}\mathbf{F}\mathbf{-}\left(\mathbf{1}\mathbf{,}\mathbf{800}\mathbf{U}\right) \\ \mathbf{=}\mathbf{\$}\mathbf{540}\mathbf{U} \end{gathered}$$