Question

Hutto Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.

Direct materials (16 lbs. @ $5 per lb.)			$80
Direct labor (2 hrs. @ $16 per hr.)			32

During May the company incurred the following actual costs to produce 8,300 units.

Direct materials (135,800 lbs. @ $4.80 per lb.)		$	651,840
Direct labor (21,400 hrs. @ $16.10 per hr.).			344,540

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate

(1) Compute the direct materials price and quantity variances.
(2) Compute the direct labor rate variance and the direct labor efficiency variance. Indicate whether each variance is favorable or unfavorable.
Actual Cost Standard Cost

Answer 1

(1)

(A)

Material price variance = actual quantity x (standard price - actual price)

= 135800 x ($5 - $4.80)

= $27160 Favorable

(B)

Material quantity variance = standard price x (standard quantity - actual quantity)

= $5 x (132800 - 135800)

= $15000 Unfavorable

Where,

Standard quantity = actual output x standard quantity per unit of output

= 8300 x 16 lbs = 132800 lbs

(2)

(A)

Labor rate variance = actual hours x (standard rate - actual rate)

= 21400 x ($16 - $16.10)

= $2140 Unfavorable

(B)

Labor efficiency variance = standard rate x (standard hours - actual hours)

= $16 x (16600 - 21400)

= $76800 Unfavorable

Where,

Standard hours = actual output x standard hours per unit of output

= 8300 x 2 = 16600 hours