(A) Question data:

Direct Materials (All materials purchased were used.)

Standard quantity: 450 rolls of telephone wire

Standard cost $4.00 per pound.

Total actual cost: $9,600.

Standard cost allowed for units produced was $9,000.

Materials efficiency variance: $80 unfavorable.

Direct Manufacturing Labor

Standard cost is 3 hours per roll at $8.00 per hour.

Actual cost per hour: $8.25.

Labor efficiency variance: $400 unfavorable.

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Solution:

Standard cost per roll = $9,000/450 rolls

= $20.00 per roll

Standard number of pound per roll = $20.00 per roll/ $4.00 per pound = 5.0 pounds per roll

Total Standard number of pound = 5.0 pounds per roll 450 rolls = 2,250 pounds

Actual pounds = ($80 unfavorable/ $4.00 per pound) + 2,250 pounds = 2,270 pounds

Materials price variance = (AP AQ) – ( SP AQ)

= $9,600 – ($4 2,270 pounds)

= $520 unfavorable

Total standard labor cost of actual hours = 3 hours per roll450 rolls$8.00per hour +$400

unfavorable

= $11,200

Actual hours = $11,200/$8.00 per hour = 1,400 hours

Total actual costs = 1,400 hours $8.25 per hour = $11,550

Labor price variance = Total actual costs – Total standard labor cost of actual hours

= $11,550 – $11,200 = $350 unfavorable

Question 1(B)

Possible causes for unfavorable direct material price variance:

• Lungren’s purchasing manager negotiated the direct materials prices unsuccessfully as expected in the budget.
• The purchasing manager changed to a higher-price supplier.
• Lungren’s purchasing manager bought smaller quantities than planed that resulted in a less discount than expected.
• Direct material prices rose unexpectedly due to industry undersupply, unexpected inflationary pressures, or an unexpected change in specification by production.
• Budgeted purchase prices of direct materials were set too low without thorough analysis of market condition, or could be outdated.
• The purchasing manager received unfavorable prices because he was willing to accept unfavorable terms on factor other than prices (such as higher quality material)
• Production requires a rush order (in which case the production manager may be responsible for unfavorable direct material variance).

Possible causes for unfavorable direct labor price variance:

• A higher skilled worker with a higher labor pay rate is assigned to a job that requires a worker with a lower skill rate.
• Overtime production requirement.
• Inefficient mix of employees than that anticipated when the standards were set.