91Ó°ÊÓ

The phrase "direct materials" alludes to one or more things, things, or substances that physically alter into an item that may be utilized or become a part of that item. Materials' costs are regarded as direct or product costs since they can be connected to each manufactured product unit.

Direct material cost variance

$\begin{array}{c}\mathbf{Direct}\mathbf{\text{ }}\mathbf{material}\mathbf{\text{ }}\mathbf{cost}\mathbf{\text{ }}\mathbf{variance}\mathbf{=}\left(\mathrm{Actual}\text{ }\mathrm{Price}-\mathrm{Standard}\text{ }\mathrm{Price}\right)\mathbf{×}\mathbf{Actual}\mathbf{\text{ }}\mathbf{quantity}\\ \mathbf{=}\left(\$0.20-\$0.15\right)\mathbf{×}\mathbf{209}\mathbf{,}\mathbf{000}\\ \mathbf{=}\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{450}\mathbf{\text{ }}\mathbf{Unfavourable}\end{array}$

Direct material efficiency variance

$\begin{array}{c}\mathbf{Direct}\mathbf{\text{ }}\mathbf{material}\mathbf{\text{ }}\mathbf{efficiency}\mathbf{\text{ }}\mathbf{variance}\mathbf{=}\left(\mathrm{Actual}\text{ }\mathrm{quantity}-\mathrm{Standard}\text{ }\mathrm{quantity}\right)\mathbf{×}\mathbf{Standard}\mathbf{\text{ }}\mathbf{price}\\ \mathbf{=}\left(\$209,000-\left(105,000×2\right)\right)\mathbf{×}\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{15}\\ \mathbf{=}\mathbf{\$}\mathbf{150}\mathbf{\text{ }}\mathbf{Favourable}\end{array}$

Direct labor cost variance

$\begin{array}{c}\mathbf{D}\mathbf{i}\mathbf{r}\mathbf{e}\mathbf{c}\mathbf{t}\mathbf{\text{ }}\mathbf{l}\mathbf{a}\mathbf{b}\mathbf{o}\mathbf{r}\mathbf{\text{ }}\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{\text{ }}\mathbf{v}\mathbf{a}\mathbf{r}\mathbf{i}\mathbf{a}\mathbf{n}\mathbf{c}\mathbf{e}\mathbf{=}\left(Actual\text{ }rate-Standard\text{ }rate\right)\mathbf{×}\mathbf{A}\mathbf{c}\mathbf{t}\mathbf{u}\mathbf{a}\mathbf{l}\mathbf{\text{ }}\mathbf{H}\mathbf{o}\mathbf{u}\mathbf{r}\mathbf{s}\\ \mathbf{=}\left(\$8.15-\$8.00\right)\mathbf{×}\mathbf{1}\mathbf{,}\mathbf{600}\\ \mathbf{=}\mathbf{\$}\mathbf{240}\mathbf{\text{ }}\mathbf{U}\mathbf{n}\mathbf{f}\mathbf{a}\mathbf{v}\mathbf{o}\mathbf{u}\mathbf{r}\mathbf{a}\mathbf{b}\mathbf{l}\mathbf{e}\end{array}$

Direct labor efficiency variance

$\begin{array}{c}\mathbf{Direct}\mathbf{\text{ }}\mathbf{labor}\mathbf{\text{ }}\mathbf{efficiency}\mathbf{\text{ }}\mathbf{variance}\mathbf{=}\left(\mathrm{Actual}\text{ }\mathrm{hours}-\mathrm{Standard}\text{ }\mathrm{hours}\right)\mathbf{×}\mathbf{Standard}\mathbf{\text{ }}\mathbf{rate}\\ \mathbf{=}\left(1,600-2,100\right)\mathbf{×}\mathbf{\$}\mathbf{8}\mathbf{.}\mathbf{00}\\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{000}\mathbf{\text{ }}\mathbf{Favourable}\end{array}$

Variable Overhead cost variance

$\begin{array}{c}\mathbf{V}\mathbf{a}\mathbf{r}\mathbf{i}\mathbf{a}\mathbf{b}\mathbf{l}\mathbf{e}\mathbf{\text{ }}\mathbf{o}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{h}\mathbf{e}\mathbf{a}\mathbf{d}\mathbf{\text{ }}\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{\text{ }}\mathbf{v}\mathbf{a}\mathbf{r}\mathbf{i}\mathbf{a}\mathbf{n}\mathbf{c}\mathbf{e}\mathbf{=}\left(Actual\text{ }rate-Standard\text{ }rate\right)\mathbf{×}\mathbf{A}\mathbf{c}\mathbf{t}\mathbf{u}\mathbf{a}\mathbf{l}\mathbf{\text{ }}\mathbf{h}\mathbf{o}\mathbf{u}\mathbf{r}\mathbf{s}\\ \mathbf{=}\left(\frac{\$9,000}{1,600}-\$10\right)\mathbf{×}\mathbf{1}\mathbf{,}\mathbf{600}\\ \mathbf{=}\mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{000}\mathbf{\text{ }}\mathbf{F}\mathbf{a}\mathbf{v}\mathbf{o}\mathbf{u}\mathbf{r}\mathbf{a}\mathbf{b}\mathbf{l}\mathbf{e}\end{array}$

Variable overhead efficiency variance

$\begin{array}{c}\mathbf{Variable}\mathbf{\text{ }}\mathbf{overhead}\mathbf{\text{​}}\mathbf{efficiency}\mathbf{\text{ }}\mathbf{variance}\mathbf{=}\left(\mathrm{Actual}\text{ }\mathrm{hours}-\mathrm{Standard}\text{ }\mathrm{hours}\right)\mathbf{×}\mathbf{Standard}\mathbf{\text{ }}\mathbf{rate}\\ \mathbf{=}\left(1,600-2,100\right)\mathbf{×}\mathbf{10}\\ \mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{000}\mathbf{\text{ }}\mathbf{Favourable}\end{array}$

Fixed overhead cost variance

$\begin{array}{c}\mathbf{Fixed}\mathbf{\text{ }}\mathbf{overhead}\mathbf{\text{ }}\mathbf{cost}\mathbf{\text{ }}\mathbf{variance}\mathbf{=}\left(\mathrm{ActualFixedOverhead}-\mathrm{BudgetedFixedOverhead}\right)\\ \mathbf{=}\left(\$26,000-\$28,900\right)\\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{900}\mathbf{\text{ }}\mathbf{Favourable}\end{array}$

Fixed overhead volume variance

$\begin{array}{c}\mathbf{Fixed}\mathbf{\text{ }}\mathbf{overhead}\mathbf{\text{ }}\mathbf{volume}\mathbf{\text{ }}\mathbf{variance}\mathbf{=}\left(\mathrm{Budgeted}\text{ }\mathrm{fixed}\text{ }\mathrm{overhead}-\mathrm{Allocated}\mathrm{Overhead}\right)\\ \mathbf{=}\left(\$28,500-\$31,500\right)\\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{\text{ }}\mathbf{Favourable}\end{array}$

Working notes:

Additional working note:

$\begin{array}{c}\mathbf{Standard}\mathbf{\text{​â¶Ä„}}\mathbf{hour}\mathbf{=}\left(\mathrm{Standard}\text{ }\mathrm{quantity}\right)\mathbf{×}\mathbf{Rate}\\ \mathbf{=}\left(105,000×2\right)\mathbf{×}\mathbf{0}\mathbf{.}\mathbf{02}\\ \mathbf{=}\mathbf{2}\mathbf{,}\mathbf{100}\end{array}$

In September, Hear Smart's management used higher-quality materials, which caused the Direct Material Cost Variance to produce an unfavorable figure of $10,450. However, the material efficiency variance produced a beneficial variation of $150 due to purchasing better-grade materials.

However, because of Material Cost Variance Surpassed Material Efficiency Variance, the overall Direct Material Variance is now $10,300 (unfavorable) (10,450 - 150). However, using high-quality products will produce better output, increasing consumer happiness. Customer happiness must be considered because it affects the company's income and reputation.