Flexer Company Ltd has set the following standards for the production of one unit of product. Normal production each month is 500 units.Direct Material 8 kg at $6.50 per kg $52Direct Labour 4 hours at $7.00 per hour $28 During June, actual production amounted to 420 units. All direct material was purchased and used this month. Actual cost amounted to:Direct Material 3,500 kg $21,875Direct Labour 1,720 hours $12,212 Determine the direct material efficiency variance (quantity variance) for June production.
Question
Flexer Company Ltd has set the following standards for the production of one unit of product. Normal production each month is 500 units.Direct Material 8 kg at 52Direct Labour 4 hours at 28 During June, actual production amounted to 420 units. All direct material was purchased and used this month. Actual cost amounted to:Direct Material 3,500 kg 12,212 Determine the direct material efficiency variance (quantity variance) for June production.
Solution 1
To calculate the direct material efficiency variance, we first need to determine the standard quantity of material for the actual production and the actual quantity of material used.
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Standard Quantity for Actual Production: The standard set by the company is 8 kg of material per unit of product. So, for the actual production of 420 units, the standard quantity would be 420 units * 8 kg/unit = 3,360 kg.
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Actual Quantity of Material Used: As given, the actual quantity of material used is 3,500 kg.
Now, we can calculate the direct material efficiency variance using the formula:
Material Efficiency Variance = (Standard Quantity - Actual Quantity) * Standard Price
Substituting the values:
Material Efficiency Variance = (3,360 kg - 3,500 kg) * 6.50/kg Material Efficiency Variance = -$910
A negative variance indicates that the company has used more material than the standard set for the actual production, which is unfavorable. Therefore, the direct material efficiency variance for June production is unfavorable and amounts to $910.
Solution 2
To calculate the direct material efficiency variance, we first need to determine the standard quantity of material for the actual production and the actual quantity of material used.
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Standard quantity for actual production: The standard set by the company is 8 kg of material per unit of product. So, for the actual production of 420 units, the standard quantity would be 420 units * 8 kg/unit = 3360 kg.
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Actual quantity of material used: From the data given, we know that the actual quantity of material used is 3500 kg.
Now, we can calculate the direct material efficiency variance using the formula:
Material Efficiency Variance = (Standard Quantity - Actual Quantity) * Standard Price
= (3360 kg - 3500 kg) * $6.50/kg
= -140 kg * $6.50/kg
= -$910
So, the direct material efficiency variance for June production is -$910. This is an unfavorable variance, as the actual quantity of material used was more than the standard quantity set by the company.
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