Written Assignment Unit 5

Papaya Partners Case Study

BUS 5110 : Managerial Accounting

University of the People

May 2021
1. Standart Cost

According to Averkamp (n.d.), the standard cost can be described as a predetermined cost, an

expected cost, a budgeted unit cost, a forecast cost, or as the cost that should be. The standard

costs used in manufacturing include the following: Direct materials, direct labor and

manufacturing overhead.

Fruit : 200,000/20,000 = $ 10/carton

Packaging : 10,000/20,000 = $ 0.5/carton

Labor : 90,000/20,000 = $ 4.5/carton

Standard Cost = $ 15/carton

2. Actual Cost Per Unit

The actual cost is the expenditure made to acquire an asset, including the invoiced price from

the supplier, delivery, setup, and testing expenses. (Bragg, 2021a).

Fruit : 244,000/20,000 = $ 12.21/carton

Packaging : 11,000/20,000 =$ 0.55/carton

Labor : 150,000/20,000 =$ 7.50/carton

Actual Cost per Unit = $ 20.26/carton

3. Direct Materials Price Variance

Direct material price variance is the difference between the price for the actual materials

acquired during a given period, and the price for the materials purchased if they were purchased

at the standard price. (Jan, 2020).

The Formula is : (Actual Rate - Standar Rate) x Materials Used

Cost of fruit = ($1.22 - $1.00) x 200,000

= $0.22 x 200,000

= $44,200

Cost of packaging = ($1.00 - $0.50) x 11,000

= $0.50 x 11,00

= $5,500

4. Direct Materials Usage Variance

The direct material usage variance is the difference between the actual and expected quantity

of material needed to manufacture a product. (Bragg, 2021b).

The formula is : (Materials Used - Standard) x Standart Rate

Cost of fruit = (200,000 - (10 x 20,000)) x $1.00

= 0 X $1.00

= $0

Cost of packaging = (11,000 - (1 x 20,000)) x $0.50

= (9,000) x $0.50

= $ (4,500)

5. Direct Labor Rate Variance

Direct Labor Rate Variance is the difference between the actual direct labor cost and the

standard direct labor cost utilized during a period. (Ali, 2020a).

Actual direct labor cost = 20,000 carton x 0.75 hours x $10 per hour

= $150,000

Standard direct labor cost = 20,000 carton x 0.75 hours x $9 per hour

= $135,000
Then. Direct Labor Rate Variance = $150,000 - $135,000

= $15,000

6. Direct Labor Efficiency Variance

Direct Labor Efficiency Variance is the difference between the standard cost of actual direct

labor hours utilized during a period and the standard hours for the level of output achieved. Ali

(Ali, 2020b)

The formula is : (Actual Hours - Standart Hours) x Standar Rate

Actual Hours = 15,000 hour

Standar Hours = 10,000 hour

Standar Rate = $9 per hour

Then, Direct Labor Efficiency Variance = (15,000 -10,000) hour x $9 per hour

= 5,000 x $9per hour

= $45,000

Conclusion :

If we add up the four direct materials and direct labor ($44,200 + $5,500 + ($0+($4,500)) +

($15,000+$45,000)), we get an unvaporable variance of $105,200. In accounting, we use the

term unfavorable variance to describe instances in which actual costs are higher than budget or

forecast costs. (Kenton, 2020). If an unfavorable variance is detected early enough, attention

can be directed towards fixing any problems.

Therefore I recommend :

(1). Materials should be purchased at competitive prices.

(2). Workers should only be hired by the management at the prices agreed upon and no

wage should be paid for worker inefficiency.

References :

Ali, A. (2020a, September 7). Direct Labor Rate Variance. Accounting Simplified.
https://accounting-simplified.com/management/variance-analysis/labor/rate/.

Ali, A. (2020b, September 7). Direct Labor Efficiency Variance. Accounting Simplified.
https://accounting-simplified.com/management/variance-analysis/labor/efficiency/.

Averkamp, H. (n.d.). What is a standard cost?: AccountingCoach. AccountingCoach.com.

https://www.accountingcoach.com/blog/what-is-a-standard-cost.

Bragg, S. (2021a, April 6). Actual cost definition. AccountingTools.

https://www.accountingtools.com/articles/2017/5/7/actual-cost.

Bragg, S. (2021b, April 16). Direct material usage variance. AccountingTools.

https://www.accountingtools.com/articles/what-is-the-direct-material-usage-
variance.html.

Jan, I. (2020, November 5). Direct Material Price Variance. Formula, Analysis & Example.
https://xplaind.com/585534/dm-price-variance.

Kenton, W. (2020, August 29). Unfavorable Variance. Investopedia.

https://www.investopedia.com/terms/u/unfavorable-
variance.asp#:~:text=Unfavorable%20variance%20is%20an%20accounting,will%20be
%20less%20than%20expected.