37. Direct Material and Direct Labor Cost Variances

Question 1

When should the direct materials price variance be calculated and how is it calculated under both the framework and formula approaches?

Answer 1

• The price variance should be calculated as soon as the materials are purchased.
• Under the framework approach, it is calculated by comparing the Actual Quantity Purchased × Actual Price to the Actual Quantity Purchased × Standard Price.
• Under the formula approach, it is calculated as Actual Quantity Purchased × (Standard Price − Actual Price).

Question 2

Which budget is the direct materials quantity or usage variance based on and how is it calculated under both the framework and formula approaches?

Answer 2

• The quantity variance (also known as the usage variance) uses the standard quantity in the flexible budget, not the original master budget.
• Under the framework approach, it is calculated by comparing the Actual Quantity Used × Standard Price to the Standard Quantity Allowed × Standard Price.
• Under the formula approach, it is calculated as (Standard Quantity Allowed − Actual Quantity Used) × Standard Price.

Question 3

How is the direct labor rate variance calculated under both the framework and formula approaches?

Answer 3

• Under the framework approach, it is calculated by comparing the Actual Hours Used × Actual Rate to the Actual Hours Used × Standard Rate.
• Under the formula approach, it is calculated as Actual Quantity × (Standard Rate − Actual Rate).

Question 4

Why is the direct labor efficiency variance called the efficiency variance and how is it calculated under both the framework and formula approaches?

Answer 4

• Using more or less direct labor often results because of an issue of managing the efficiency of labor usage.
• Under the framework approach, it is calculated by comparing the Actual Hours Used × Standard Rate to the Standard Hours Allowed × Standard Rate.
• Under the formula approach, it is calculated as (Standard Hours Allowed − Actual Hours Used) × Standard Rate

Question 5

Which variance is the direct labor mix variance a subset of, and how is it calculated under both the framework and formula approaches?

Answer 5

• The direct labor mix variance is a subset of the labor efficiency variance.
• Under the framework approach, it is calculated by comparing the Total Actual Quantity × Actual Mix % × Standard Rate to the Total Actual Quantity × Standard Mix % × Standard Rate.
• Under the formula approach, it is calculated as Total Actual Quantity × (Standard Mix % − Actual Mix %) × Standard Rate.

Question 6

Which variance is the direct labor yield variance a subset of, and how is it calculated under both the framework and formula approaches?

Answer 6

• The direct labor yield variance is a subset of the labor efficiency variance.
• Under the framework approach, it is calculated by comparing the Total Actual Quantity × Standard Mix % × Standard Rate to the Total Standard Quantity Allowed × Standard Mix % × Standard Rate.
• Under the formula approach, it is calculated as (Total Standard Quantity Allowed − Total Actual Quantity) × Standard Mix % × Standard Rate.