Question

The following describes production activities of Mercer Manufacturing for the year. Actual direct materials used Actual direct labor used Actual units produced 29,000 lbs. at $5.10 per lb. 8,100 hours for a total of $164,430 48,000 Budgeted standards for each unit produced are 0.50 pound of direct material at $5.05 per pound and 10 minutes of direct labor at $22.00 per hour AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate AQ = Actual Quantity SQ = Standard Quantity AP = Actual Price SP Standard Price (1) Compute the direct materials price and quantity variances and classify each as favorable or unfavorable (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance. Round "Cost per unit" answers to 2 decimal places.) (2) Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)

Answer 1

1. Materials price variance = (Standard price - actual price) x Material purchased
= {$5.05 - $5.10} x 29,000 = $1,450 Unfavorable

Materials quantity variance = (Standard quantity - actual quantity used) x standard price
= {(48000*0.50) - 29,000} x $5.05 = $25,250 Unfavorable

2. Labor rate variance = (Standard rate - actual rate) x Actual hours used
= {$22 - ($164430/8100)} x 8100 = $13,770 Favorable

Labor efficiency variance = (Standard hours - actual hours) x Standard rate
= {(48000*10/60) - 8100} x $22 = $2,200 Unfavorable