Question

Reed 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 (4 hrs. @ $15 per hr.) $60

During June the company incurred the following actual costs to produce 9,000 units.

Direct materials (146,700 lbs. @ $4.75 per lb.) $696,825
Direct labor (40,300 hrs. @ $15.10 per hr.). $608,530

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. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)
(2) Compute the direct labor rate variance and the direct labor efficiency variance. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)

AP = Actual Price SP = Standard Price 1) Compute the direct materials price and quantity variances, (Indicate the effect of each variance by selecting for f unfavorable, and no variance. (2) Compute the direct labor rate variance and the direct labor efficiency variance (Indicate the effect of each varian for favorable, unfavorable, and no variance. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the direct materials price and quantity variances. Indicate whether each variance is favorable or unfavorable. Actual Cost Standard Cost Required 2 >

Answer 1

Requirement 1: Compute material price and quantity variance as follows

Actual Cost								Standard Cost
Actual Quantity	×	Actual Price		Actual Quantity	×	Standard Price		Standard Quantity	×	Standard Price
146,700	×	$4.75		146,700	×	$5.00		144,000	×	$5.00
$696,825			−	$733,500			−	$720,000
		$36,675				$13,500
Note: (9,000 units × 16 lbs. = 144,000 lbs.)
Particulars					Amount
Direct material price variance					$36,675		Favorable
Direct material quantity variance					$13,500		Unfavorable
Total material variance					$23,175		Favorable

Requirement 2: Compute labor rate and efficiency variance as follows

Actual Cost								Standard Cost
Actual Hours	×	Actual Rate		Actual Hours	×	Standard Rate		Standard Hours	×	Standard Rate
40,300	×	$15.10		40,300	×	$15.00		36,000	×	$15.00
$608,530			−	$604,500			−	$540,000
		$4,030				$64,500
Note: (9,000 units × 4 hours = 36,000 hours)
Particulars					Amount
Direct labor rate variance					$4,030		Unfavorable
Direct labor efficiency variance					$64,500		Unfavorable
Total labor variance					$68,530		Unfavorable