Question

Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below:

	Standard Quantity or Hours		Standard Price or Rate			Standard Cost
Direct materials	4.6	pounds	$	2.50	per pound	$	11.50
Direct labor	0.2	hours	$	12.00	per hour	$	2.40

During the most recent month, the following activity was recorded:

1. Twenty thousand pounds of material were purchased at a cost of $2.35 per pound.
2. The company produced only 3,000 units, using 14,750 pounds of material. (The rest of the material purchased remained in raw materials inventory.)
3. 750 hours of direct labor time were recorded at a total labor cost of $10,425.

Required:

1. Compute the materials price and quantity variances for the month. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

	Direct materials price variance Direct materials quantity variance

Answer 1

Direct Material price Variance = (Actual Price - Standard price) x Actual Quantity
= ($2.35 - $2.50) x 14750 = $2212.50 (F)

Direct Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
= (14750 - 13800) x $2.50 = $2375 (U)
Standard Quantity = 3000 x 4.6 = 13800 pounds