Question

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials—X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis):

	Raw Material			Standard Labor Time
Product	X442	Y661		Sintering	Finishing
Alpha6	1.8 kilos	2.0 liters		0.20 hours	0.80 hours
Zeta7	3.0 kilos	4.5 liters		0.35 hours	0.90 hours

Information relating to materials purchased and materials used in production during May follows:

Material	Purchases		Purchase Cost	Standard Price		Used in Production
X442	14,500	kilos	$52,200	$3.50	per kilo	8,500	kilos
Y661	15,500	liters	$20,925	$1.40	per liter	13,000	liters

The following additional information is available:

1. The company recognizes price variances when materials are purchased.
2. The standard labor rate is $19.80 per hour in Sintering and $19.20 per hour in Finishing.
3. During May, 1,200 direct labor-hours were worked in Sintering at a total labor cost of $27,000, and 2,850 direct labor-hours were worked in Finishing at a total labor cost of $59,850.
4. Production during May was 1,500 Alpha6s and 2,000 Zeta7s.

2. Compute the materials price and quantity variances for each material.

3. Compute the labor rate and efficiency variances for each operation.

Answer 1

2) Direct Materials Variances- Materials X442:

Actual price= $52200/14500= $3.60

Materials price variance= (Standard price-Actual price)*Actual quantity

= (3.50-3.60)*14500= $1450 U

Standard quantity= (1.8*1500)+(3.0*2000)= 8700

Materials quantity variance= (Standard quantity-Actual quantity)*Standard price

= (8700-8500)*$3.50= $700 F

Direct Materials Variances- Materials Y661:

Actual price= $20925/15500= $1.35

Materials price variance= (Standard price-Actual price)*Actual quantity

= (1.40-1.35)*15500= $775 F

Standard quantity= (2.0*1500)+(4.5*2000)= 12000

Materials quantity variance= (Standard quantity-Actual quantity)*Standard price

= (12000-13000)*$1.40= $1400 U

3) Direct Labor Variances- Sintering:

Actual rate= $27000/1200= $22.50

Labor rate variance= (Standard rate-actual rate)*Actual hours

= ($19.80-22.50)*$1200= $3240 U

Standard hour= (0.20*1500)+(0.35*2000)= 1000

Labor efficiency variance= (Standard hour-Actual hour)*Standard rate

= (1000-1200)*$19.80= $3960 U

Direct Labor Variances- Finishing:

Actual rate= $59850/2850= $21

Labor rate variance= (Standard rate-actual rate)*Actual hours

= ($19.20-21.00)*2850= $5130 U

Standard hour= (0.80*1500)+(0.90*2000)= 3000

Labor efficiency variance= (Standard hour-Actual hour)*Standard rate

= (3000-2850)*$19.20= $2880 F