"Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well," said Kim Clark, president of Martell Company, "Our 18,300 overall manufacturing cost variance is only 1.2% of the 1,536,000 standard cost of products made during the year. That's well within the 3 \% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year" "
The company produces and sells a single product. The standard cost card for the product follows:

The following additional information is available for the year just completed:
a. The company manufactured 30,000 units of product during the year.
b. A total of 64,000 feet of material was purchased during the year at a cost of 8.55 per foot. All of this material was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.

Required:
(b)Compute the direct labor rate and efficiency variances for the year.

The difference between the budgeted/standard material cost for a product and the actual material costs after production. Material variances are calculated for the effect of changes in quantity consumed and changes in price of the raw materials price.

It is calculated as follows:

Material price variance=Actual quantity×(Actual price−Standard price)

Material quantity variance=(Actual quantity−Standard quantity)×Standard price

Direct labor cost variance is the difference between the standard cost for actual production and the actual cost in production.

It is calculated as follows:

Labor efficiency variance=(Actual hours−Standard hours)×Standard rate

Labor rate variance=(Actual rate−Standard rate)×Actual hours

Overhead variance is the difference between the actual overheads and the expected/budgeted overheads.

It is calculated as follows:

Overhead rate variance=(Actual rate−Standard rate)×Actual hours

Overhead efficiency variance=(Actual hours−Standard hours)×Standard rate

Overhead budget variance=Actual overhead−Budgeted overhead

Overhead volume variance=(Standard hours allowed−Denominator activity level)×Overhead rate per hour)

Calculate the material price variance as shown below:

Material price variance=Actual quantity×(Actual price−Standard price)=77,000 feet ×($4.25−$4.00)=$19,250 unfavorable

Therefore, the material price variance is $19,250 unfavorable

Calculate the material quantity variance as shown below:

Material quantity variance (Actual quantity−Standard quantity)×Standard price=[77,000feet−(20,000feet×4)]×$4=$12,000 favorable

Therefore, the material quantity variance is$12,000 favorable.

Calculate the labor rate variance as shown below:

Labor rate variance=(Actual rate−Standard rate)×Actual hours=($12.50−$13.00)×24,000hours=$12,000favorable

Therefore, the labor rate variance is$12,000favorable.

Calculate the labor efficiency variance as shown below:

Labor efficiency variance=(Actual hours−Standard hours)×Standard rate=(24,000 hours−(20,000×1.1hours))×$13=$26,000 unfavorable

Therefore, the labor efficiency variance is $26,000 unfavorable.

Calculate the Variable overhead rate variance as shown below:

Variable overhead rate variance=(Actual rate−Standard rate)×Actual hours=($64,80024,000−$2.40)×24,000 hours=$7,200 unfavorable

Therefore, the Variable overhead rate variance is$7,200unfavorable.

Calculate the Variable overhead efficiency variance as shown below:

Variable overhead efficiency variance=(Actual hours−Standard hours)×Standard rate=(24,000 hours−(20,000×1.1 hours))×$2.40=$4,800 unfavorable

Therefore, the Variable overhead efficiency variance is $4,800 unfavorable.

Calculate the Fixed overhead budget variance as shown below:

Overhead budget variance=Actual overhead−Budgeted overhead=$120,900−$123,500=$2,600 favorable

Calculate the Fixed overhead volume variance as shown below:

Overhead volume variance=(Standard hours allowed−Denominator activity level)×Overhead rate per hour=[(20,000×1.1) −19,000] ×$6.50 =$19,500unfavorable

Therefore, the Fixed volume variance is$19,500unfavorable.

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