During May, Joliet Fabrics Corporation Manufactured 500 Unit

During May Joliet Fabrics Corporation Manufactured 500 Units Of A Spe

During May, Joliet Fabrics Corporation manufactured 500 units of a special multilayer fabric with the trade name Stylex. The following information from the Stylex production department pertains to May:

- Direct material purchased: 18,000 yards at $1.38 per yard, totaling $24,840.

- Direct material used: 9,500 yards at $1.38 per yard, totaling $13,110.

- Direct labor: 2,100 hours at $9.15 per hour, totaling $19,215.

The standard prime costs for one unit of Stylex are:

- Direct material: 20 yards at $1.35 per yard, totaling $27.

- Direct labor: 4 hours at $9.00 per hour, totaling $36.

The total standard prime cost per unit of output is $63.

Using this information, compute the following variances for the month of May, indicating whether each variance is favorable or unfavorable:

1. Direct-material price variance

2. Direct-material quantity variance

3. Direct-labor rate variance

4. Direct-labor efficiency variance

Paper For Above instruction

The analysis of variances is crucial for understanding how well a manufacturing company manages its costs and production processes. Variance analysis compares actual costs with standard costs to identify areas where performance deviates from expectations, providing insights into cost control and operational efficiency. In this paper, we will compute four variances for Joliet Fabrics Corporation’s production of Stylex fabric in May: the direct-material price variance, direct-material quantity variance, direct-labor rate variance, and direct-labor efficiency variance, interpreting each as favorable or unfavorable.

Direct-Material Price Variance evaluates the difference between the actual price paid per yard of material and the standard price, multiplied by the actual quantity purchased. It measures how well purchasing strategies adhere to anticipated costs. The formula is:

\[ \text{Price Variance} = (\text{Actual Price} - \text{Standard Price}) \times \text{Actual Quantity Purchased} \]

Given the actual price of $1.38 per yard and the standard price of $1.35 per yard, along with actual purchase of 18,000 yards, the calculation is:

\[ ( \$1.38 - \$1.35 ) \times 18,000 = 0.03 \times 18,000 = \$540 \]

Since the actual price exceeds the standard, this variance is unfavorable, indicating higher costs than planned.

Direct-Material Quantity Variance assesses the efficiency of material usage by comparing the actual quantity used with the standard quantity allowed for actual production. The formula is:

\[ \text{Quantity Variance} = ( \text{Actual Quantity Used} - \text{Standard Quantity Allowed} ) \times \text{Standard Price} \]

The standard quantity per unit is 20 yards; for 500 units, the standard quantity is:

\[ 20 \text{ yards} \times 500 = 10,000 \text{ yards} \]

Actual material used is 9,500 yards. The variance is:

\[ (9,500 - 10,000) \times \$1.35 = (-500) \times \$1.35 = -\$675 \]

A negative variance indicates less material used than expected, which is favorable as it suggests efficient material utilization.

Direct-Labor Rate Variance measures the difference between the actual hourly wage paid and the standard wage rate, multiplied by actual hours worked:

\[ \text{Rate Variance} = (\text{Actual Rate} - \text{Standard Rate}) \times \text{Actual Hours} \]

Actual rate is $9.15/hour, standard rate is $9.00/hour, and actual hours are 2,100:

\[ (\$9.15 - \$9.00) \times 2,100 = 0.15 \times 2,100 = \$315 \]

Since the actual rate exceeds the standard, this variance is unfavorable, indicating higher labor costs per hour.

Direct-Labor Efficiency Variance evaluates whether the actual hours worked differed from the standard hours allowed for actual production:

\[ \text{Efficiency Variance} = ( \text{Actual Hours} - \text{Standard Hours Allowed} ) \times \text{Standard Rate} \]

Standard hours per unit are 4 hours; for 500 units, the standard hours are:

\[ 4 \times 500 = 2,000 \text{ hours} \]

Actual hours worked are 2,100. The variance is:

\[ (2,100 - 2,000) \times \$9.00 = 100 \times \$9.00 = \$900 \]

Since actual hours exceed standard hours, this variance is unfavorable, indicating less efficient labor utilization.

Summary of Variances:

- Material Price Variance: $540 Unfavorable

- Material Quantity Variance: $675 Favorable

- Labor Rate Variance: $315 Unfavorable

- Labor Efficiency Variance: $900 Unfavorable

These variances highlight areas where Joliet Fabrics can improve cost controls, such as negotiating better material prices, enhancing labor efficiency, and managing wage rates more effectively.

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