Variance and direct labor
Pepsi Company manufactures recyclable soft-drink cans. A unit of production is a case of 12 dozen cans. The following standards have been set by the production-engineering staff and the controller.
Direct Labor: Direct Material:
Quantity, 0.29 hour Quantity, 8 kilograms
Rate, $14.50 per hour Price, $0.68 per kilogram
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Actual material purchases amounted to 412,800 kilograms at $0.700 per kilogram. Actual costs incurred in the
production of 48,000 units were as follows:
Direct labor: $228,096 for 15,360 hours
Direct material: $273,840 for 391,200 kilograms
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Required:
1. Use the variance formulas to compute the direct-material price and quantity variances, the direct-
material purchase price variance, and the direct-labor rate and efficiency variances. Indicate whether each
variance is favorable or unfavorable. (Indicate the effect of each variance by selecting “Favorable” or
“Unfavorable”. Select “None” and enter “0” for no effect (i.e., zero variance). Do not round intermediate
calculations.)
Direct-material price variance
Direct-material quantity variance
Direct-material purchase price variance
Direct-labor rate variance
Direct-labor efficiency variance
The following data pertain to Colgate Palmolive’s liquid filling line during the first 10 months of a
particular year. The standard ratio of direct-labor hours to machine hours is 4:1. The standard direct-labor
rate is $16.08.
Colgate Palmolive: Direct-Labor Efficiency Variance Data*
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Units
Produced Machine
Hours Standard
Direct-Labor
Hours Actual
Direct-Labor
Hours Direct-Labor
Efficiency
Variance
January 50,678 175.5 702.00 394.00
$ 4,953
February 32,143 110.3 441.20 234.00
3,332
March 186,179 572.0 2,288.00 1,108.00
18,974
April 214,274 727.8 2,911.20 1,525.75
22,278
May 49,390 170.0 680.00 384.00
4,760
June 83,136 252.0 1,008.00 576.50
6,939
July 36,608 114.0 456.00 303.00
2,460
August 33,883 106.0 424.00 347.50
1,230
September 32,060 106.0 424.00 357.50
1,069
October 28,691 82.0 328.00 198.00
2,090
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Required:
1-a. Which of the following amounts did Colgate Palmolive use in calculating its standard direct labor
hours for the month of January? (Select all that apply.)
Actual direct-labor hours
Standard ratio of direct-labor hours to machine hours.
Machine hours
Units produced
1-b. Which of the following amounts did Colgate Palmolive use in calculating its direct-labor efficiency
variance for the month of January? (Select all that apply.)
Actual direct-labor hours
Standard direct-labor hours.
Standard direct-labor rate
Units produced
2. Calculate the following amounts.
a. The standard direct-labor cost for each of the 10 months. (Round intermediate calculation to 2
decimal places and final answers to nearest whole dollar amount.)
Standard Direct-labor cost
January
February
March
April
May
June
July
August
September
October
b. For each month, 20 percent of the standard direct-labor cost. (Round your final answers to the
nearest whole dollar amount.)
20% of the Standard Direct-labor cost
January
February
March
April
May
June
July
August
September
October
3. Suppose management investigates all variances in excess of 20 percent of standard cost. Which months
contain a variance that would be investigated? (Select all that apply.)
January
February
March
April
May
June
July
August
September
October
4. Which of the following could be a reason why the direct-labor efficiency variances for March, April and
June are larger than in the other months?
The actual direct-labor rate was significantly higher.
The standard direct-labor rate was significantly higher.
Production volume was significantly higher.
Gandolph Game Company has established the following standards for the prime costs of one unit of its chief
product, dartboards.
Standard Cost Standard Quantity Standard Price or Rate
Direct material $ 30.00 15.00 kilograms $ 2.00 per
kilogram
Direct labor 7.20 1.20 hour $ 6.00 per hour
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Total $ 37.20
________________________________________________________________________________
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________________________________________________________________________________
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During September, Gandolph purchased 425,000 kilograms of direct material at a total cost of $935,000.
The total wages for September were $226,368, 75 percent of which were for direct labor. Gandolph
manufactured 27,000 dartboards during September, using 394,200 kilograms of the direct material purchased in
September and 35,370 direct-labor hours.
Required:
Compute the following variances for September. (Do not round intermediate calculations. Indicate the effect
of each variance by selecting “Favorable” or “Unfavorable”. Select “None” and enter “0” for no effect (i.e.,
zero variance).)
Direct-material price variance
Direct-material quantity variance
Direct-material purchase price variance
Direct-labor rate variance
Direct-labor efficiency variance
During March, Manhattan Fabrics Corporation manufactured 600 units of a special multilayer fabric with the
trade name Stylex. The following information from the Stylex production department also pertains to March.
Direct material purchased: 19,000 yards at $1.48 per yard $ 28,120
Direct material used: 10,500 yards at $1.48 per yard 15,540
Direct labor: 3,100 hours at $9.25 per hour 28,675
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The standard prime costs for one unit of Stylex are as follows:
Direct material: 20 yards at $1.45 per yard $ 29.00
Direct labor: 5 hours at $8.00 per hour 40.00
________________________________________ ________________________________________
________________________________________
Total standard prime cost per unit of output $ 69.00
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Required:
Compute the following variances for the month of March. (Indicate the effect of each variance by selecting
“Favorable” or “Unfavorable”. Select “None” and enter “0” for no effect (i.e., zero variance).
Direct-material price variance
Direct-material quantity variance
Direct-material purchase price variance
Direct-labor rate variance
Direct-labor efficiency variance
Harrison Wolfe operates a residential landscaping business in an affluent suburb of Atlanta. In an effort to
provide quality service, he has concentrated solely on the design and installation of upscale landscaping
plans (e.g., trees, shrubs, fountains, and lighting). With his clients continually requesting additional
services, Wolfe recently expanded into lawn maintenance, including fertilization.
The following data relate to his first year’s experience with 60 fertilization clients. Each client
required seven applications throughout the year and was billed $45.00 per application.
• Three applications involved Type I fertilizer, which contains a special ingredient for weed control.
The remaining four applications involved Type II fertilizer.
• Wolfe purchased 5,500 pounds of Type I fertilizer at $0.58 per pound and 10,500 pounds of Type II
fertilizer at $0.45 per pound. Actual usage amounted to 4,300 pounds of Type I and 8,050 pounds of Type II.
• A new, part-time employee was hired to spread the fertilizer. Wolfe had to pay premium wages of
$12.00 per hour because of a very tight labor market; the employee logged a total of 175 hours at client
residences.
• Based on previous knowledge of the operation, articles in trade journals, and conversations with
other landscapers, Wolfe established the following standards:
Typical hourly wage rate of landscape personnel: $9.50
Labor time per application: 40 minutes
Fertilizer purchase price per pound: Type I, $0.55; Type II, $0.47
Fertilizer usage: 45 pounds per application
Unfortunately, Wolfe’s new lawn fertilization service did not go as smoothly as planned, with customer
complaints being much higher than expected.
Required:
1. Compute Wolfe’s direct-material variances for each type of fertilizer. (Indicate the effect of each
variance by selecting “Favorable” or “Unfavorable”. Select “None” and enter “0” for no effect (i.e., zero
variance). Round your answers to 2 decimal place.)
Direct-material Type 1 Type 1 Type II Type II
Price variance
Quantity variance
Purchase price variance
2. Compute the direct-labor variances. (Indicate the effect of each variance by selecting “Favorable”
or “Unfavorable”. Select “None” and enter “0” for no effect (i.e., zero variance). Do not round intermediate
calculations and round your final answers to 2 decimal place.)
Direct-Labor
Rate variance
Efficiency variance
3-a. Compute the actual cost of the client applications. (Note: Exclude any fertilizer in inventory, as
remaining fertilizer can be used next year.) (Round your answer to 2 decimal place.)
Actual cost
3-b. Calculate the profit or loss of Wolfe’s new lawn fertilization service. (Round your answer to 2
decimal place.)
On the basis of the variances that you computed in parts (1) and (2) was the new service a success from an
overall cost-control perspective? (Round your answer to 2 decimal place.)
Total Variance
5. Should the fertilizer service be continued next year?
Yes, continue service but consider some changes
Yes, continue service with no changes
No
