Basic Price and Quantity Variances for Labor and Materials
Arrow

question 5

Essay

Basic Price and Quantity Variances for Labor and Materials
Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the direct costs of one unit of product. $$\begin{array} { | l r | r | r | } \hline & \begin{array} { r } \text { Standard } \\\text { Quantity }\end{array} & \begin{array} { r } \text { Standard } \\\text { Price }\end{array} & \begin{array} { r } \text { Standard } \\\text { Cost }\end{array} \\\hline \begin{array} { l } \text { Direct } \\\text { materials }\end{array} & 8 \text { pounds } & \begin{array} { r } \$ 1.80 \mathrm { per } \\\text { pound }\end{array} & \$ 14.40 \\\hline \text { Direct labor } & 0.25 \text { hour } & \begin{array} { r } \$ 8.00 \mathrm { per } \\\text { hour }\end{array} & \underline { 2.00 } \\\hline && & \$ 16.40 \\\hline\end{array}$$ During May, Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for May were $42,000, 90 percent of which were for direct labor. Arrow manufactured 19,000 units of product during May using 142,500 pounds of direct material and 5,000 direct labor hours.
Required:
a. Calculate the direct materials price variance for May.
b. Calculate the direct materials quantity variance for May.
c. Calculate the direct labor wage rate variance for May.
d. Calculate the direct labor efficiency variance for May.

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Definitions:

Decision Making

A process of selecting the best option among multiple alternatives to achieve an objective or a solution to a problem.

Net Income

A financial term representing the profit left after all expenses, taxes, and costs have been subtracted from total revenue.

Income

Money received, especially on a regular basis, for work or through investments.

Expenses

Costs that a business incurs through its operations to generate revenue, including costs of goods sold, rent, utilities, and salaries.