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: $\begin{array}{lcc}&\text { Standard Quantity}&\text { Standard Price }\\\text { Direct materials } & 2.5 \text { pounds } & \$ 3 \text { per pound } \\\text { Direct labor } & 0.6 \text { hours } & \$ 10 \text { per hour }\end{array}$ 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

Question

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:

\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}

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

Bineta Barry · Accepted Answer

Final Answer :

(a) Materials price variance
= (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

Definitions

Learning Objectives

Learning Objectives

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