Q7SE - Horngren'S Financial And Managerial Accounting

Question

Martin, Inc. manufactures lead crystal glasses. The standard direct labor time is 0.5 hours per glass, at a cost of \(18 per hour. The actual results for one month’s production of 6,500 glasses were 0.2 hours per glass, at a cost of \)11 per hour. Calculate the direct labor cost variance and the direct labor efficiency variance.

Step-by-Step Solution

Answer

The direct labor cost variance of the company is $63,700(F)

The direct labor efficiency variance of the company is $35,100(F).

Step 1: Meaning of Variances

Cost variances refer to the difference between the actual cost incurred and the budgeted costs.

Step 2: Computation of the direct labor cost variance-

$\begin{array}{c}\text{Direct\hspace{0.17em}material\hspace{0.17em}cost\hspace{0.17em}variance}=\left(\text{Actual\hspace{0.17em}cost}-\text{Standard cost}\right)\times \text{Actual\hspace{0.17em}quantity}\\ \mathrm{=}\left(\mathrm{\$}11-\mathrm{\$}18\right)\times \left(6500\times 1.4\right)\\ =\mathrm{\$}63,700\text{\hspace{0.17em}F}\end{array}$

Step 3: Computation of the direct labor efficiency variance-

$\begin{array}{c}\text{Direct\hspace{0.17em}material\hspace{0.17em}efficiency\hspace{0.17em}variance}=\left(\text{Actual\hspace{0.17em}quantity}-\text{Standard\hspace{0.17em}quantity}\right)\times \text{Standard\hspace{0.17em}cost}\\ \mathrm{=}\left[\left(6500\times 0.2\right)-\left(6500\times 0.5\right)\right]\times \mathrm{\$}18\\ =\left(1300-3250\right)\times 18\\ =\mathrm{\$}35,100\text{\hspace{0.17em}F}\end{array}$