Modern Convenience specializes in making robotic conveyor systems to move materials within a factory. Model #89 accounts for approximately 60 percent of the company’s annual sales. Because the company has produced and expects to continue to produce a significant quantity of this model, Modern Convenience uses the following standard costs to account for Model #89 production costs:
Direct material (28,000 pounds) …………………$56,000
Direct labor (1,720 hours at $20 per hour) ……… 34,400
Overhead …………………………………………. 76,000
Total standard cost …………………………… $166,400
For the 200 units of Model #89 produced in 2010, the actual costs were
Direct material (6,000,000 pounds) ………… $11,600,000
Direct labor (178,400 hours) ………………….. 6,957,600
Overhead ……………………………………. 14,800,000
Total actual cost …………………………… $33,357,600
a. Compute a separate variance between actual and standard cost for direct material, direct labor, and manufacturing overhead for the Model #89 units produced in 2010.
b. Is the direct material variance found in (a) driven primarily by the price per pound difference between standard and actual or the quantity difference between standard and actual? Explain.