Molino Company Direct Material and Direct Labor Variances

Introduction

Molino Company produces ponchos and has established direct material and direct labor standards for one poncho. In the first quarter, the company produced 25,000 ponchos and incurred costs for wool and labor. Let's calculate the direct material price and usage variances as well as the direct labor rate and efficiency variances.

Direct Material Price and Usage Variances

Direct material price variance is calculated by taking the difference between actual and standard price, multiplied by actual quantity. The direct material usage variance is calculated by taking the difference between actual and standard quantity, multiplied by standard price.

A) Calculate the direct material price and usage variances.

Direct Material Price Variance: The direct material price variance is -$7,820.

Direct Material Usage Variance: The direct material usage variance is $9,600.

Direct Labor Rate and Efficiency Variances

Direct labor rate variance is calculated by taking the difference between actual and standard labor rate, multiplied by actual hours. The direct labor efficiency variance is calculated by taking the difference between actual and standard hours, multiplied by standard rate.

B) Calculate the direct labor rate and efficiency variances.

Direct Labor Rate Variance: The direct labor rate variance is $1,800.

Direct Labor Efficiency Variance: The direct labor efficiency variance is $50,000.

Total Material Direct Material Cost Variance

The total material direct material cost variance is the sum of direct material price and usage variances.

C) Total material direct material cost variance.

Total Material Direct Material Cost Variance: The total material direct material cost variance is $1,780.

Question

How are direct material price and usage variances calculated?

Answer

Direct material price variance is calculated by taking the difference between actual and standard price, multiplied by actual quantity. Direct material usage variance is calculated by taking the difference between actual and standard quantity, multiplied by standard price.