Materials Quantity Usage Variance and Labor Efficiency Variance

Question

The Albright Company manufactures rubber parts for the automobile industry. The company had planned to produce 4,750 units according to the November budget. Its material standard specifies a cost of $2.70 per gallon and usage of 1.5 gallons per unit. Variable manufacturing overhead is $2 per direct labor hour. Total standard direct labor hours allowed in November budget is 2,375 hours for the month. Total direct labor costs are budgeted to be $19,000. During November, the company made 4,000 units and incurred the following costs:

Direct Materials Purchased : 8,100 gallons at $3.10 per gallon

Direct Materials used : 7,600 gallons

Direct Labor Used : 2,400 at $8.25 per hour

Actual Variable Overhead : $4,175

Question 1) Albright's material (or usage) variance for November was ?

A) $3,240 Favorable B) $4,320 Favorable C) $3,240 Unfavorable D) $4,320 Unfavorable

E) None of Above

Answer was D) but I don't get how, please show help with steps.

Question 2) Albright's labor efficiency variance for November was ?

A) $3,200 unfavorable B) $600 unfavorable C) $3,200 favorable D) $600 favorable E) $50 Favorable

 

Answer was A) but I don't get how, please show help with steps 

Answer 1

Variance is the difference between Expected expenses and Actual expenses.

Part 1

1. Expected expenses = (#units x gallons/unit x $/gal) + variable mfg. overhead + direct labor costs

2. E = (4,750 x 1.5g/u x $2.70/g) + (2,375hr x $2/hr) + $19,000 = $42,988

 

3. Actual expenses = (#units x gallons/unit x $/gal) + variable mfg. overhead + direct labor costs

4. Usage/unit = 7,600g/4,000 = 1.9g/u

5. A = (4,000u x 1.9g/u x $3.10/g) + (2,400hr x $8.25/hr) + $4,175 = $47,535

 

6. Variance = E - A = $42,988 - 47,535 = $-4,548 So, the answer is option E.

( I was able to modify the numbers so that option D was correct, but in order to obtain that figure, it was necessary to use $3.07/g in the Actual expenses. I saw no reason to do so.)

 

Part 2

Variance is the difference between Expected expenses and Actual expenses.

 

It appeared to me that the answer would come from

V = [(2,375u x $2/u) + 19,000] - [(2,400hr x $8.25/hr) + $4,175] however, that approach did not yield a number which matched any of the choices given in the problem. I was unable to find another solution.