Management Accounting
Standard Costing
EXERCISE 10–2 Material Variances
Harmon Household Products, Inc., manufactures a number of consumer items for
general household use. One of these products, a chopping board, requires an expensive
hardwood. During a recent month, the company manufactured 4,000 chopping boards
using 11,000 board feet of hardwood. The hardwood cost the company $18,700.The
company’s standards for one chopping board are 2.5 board feet of hardwood, at a cost
of$1.80 per board foot.
Required:
1. According to the standards, what cost should have been incurred for wood to make
4,000 chopping blocks? How much greater or less is this than the cost that was incurred?
2. Break down the difference computed in (1) above into a materials price variance and
a material quantity variance.
1. Number of chopping blocks 4,000
Number of board feet per chopping block 2.5
Total standard board feet allowed ......................... 10,000
Standard cost per board foot .............................. × $1.80
Total standard cost ............................................. $ 18,000
Actual cost incurred ................................. $ 18,700
Total standard cost (above) ................................. 18,000
Total material variance unfavorable .................... $ 700
2. Actual Quantity Standard Quantity
of Inputs, at Actual Quantity of Input, Allowed for Output, at
Actual Price at Standard Price Standard Price
(AQ × AP) (AQ × SP) (SQ × SP)
11,000 broad feet 10,000 broad feet ×
× $1.80 board foot $1.80 board foot =
$18,700 = $19,800 $18,000
Price Variance, Quantity Variance,
$1,100 F $1,800 U
Total Variance,
$700 U
Alternatively:
Materials price variance = AQ (AP – SP)
11,000 broad feet ($1.70 board foot * – $1.80 board foot) =
$1,100 F
* $18,700 ÷ 11,000 broad feet = $1.70 board foot
Materials quantity variance = SP (AQ – SQ)
$1.80 board foot (11,000 broad feet – 10,000 broad
feet) =$1,800 U
EXERCISE 10–5 Material and Labor Variances
Sonne Company produces a perfume called Whim. The direct materials and direct labor standards
for one bottle of Whim are given below:
During the most recent month, the following activity was recorded:
a. Twenty thousand ounces of material were purchased at a cost of $2.40 per ounce.
b. All of the material was used to produce 2,500 bottles of Whim.
c. Nine hundred hours of direct labor time were recorded at a total labor cost of $10,800.
Required:
1. Compute the direct materials price and quantity variances for the month.
2. Compute the direct labor rate and efficiency variances for the month.
1. Materials price variance = AQ (AP – SP)
20,000 ounces ($2.40 per ounce – $2.50 per ounce) = $2,000 F
Materials quantity variance = SP (AQ – SQ)
$2.50 per ounce (20,000 ounces – 18,000 ounces) = $5,000 U
2. Labor rate variance = AH (AR – SR)
900 hours ($12.00 per hour* – $10.00 per hour) = $1,800 U
*10,800 ÷ 900 hours = $12.00 per hour
Labor efficiency variance = SR (AH – SH)
$10.00 per hour (900 hours – 1000 hours) = $1000 F
