Exercise 14-26 Direct Materials and Direct Labor Variances [LO 14-3]
Assume that Schmidt Machinery Company had the standard costs reflected in Exhibit 14.5. In a given month, the company used 3,485 pounds of aluminum to manufacture 927 units. The company paid $29.20 per pound during the month to purchase aluminum. At the beginning of the month, the company had 57 pounds of aluminum on hand. At the end of the month, the company had only 37 pounds of aluminum in its warehouse. Schmidt used 4,550 direct labor hours during the month, at an average cost of $42.20 per hour.
Required:
Compute for the month the following variances:
1. The purchase-price variance for aluminum. Indicate whether this variance is favorable (F) or unfavorable (U).
2. The usage variance for aluminum. Indicate whether this variance is favorable (F) or unfavorable (U).
3. The direct labor rate variance. Indicate whether this variance is favorable (F) or unfavorable (U).
4. The direct labor efficiency variance. Indicate whether this variance is favorable (F) or unfavorable (U).
Answers
Purchase Price Variance |
||||||
( |
Standard Rate |
- |
Actual Rate |
) |
x |
Actual Quantity purchased = 37 + 3485 - 57 |
( |
$ 25.00 |
- |
$ 29.20 |
) |
x |
3465 |
-14553 |
||||||
Variance |
$ 14,553.00 |
Unfavourable-U |
Usage Variance |
||||||
( |
Standard Quantity = 927 units x 4 pounds |
- |
Actual Quantity used |
) |
x |
Standard Rate |
( |
3708 |
- |
3845 |
) |
x |
$ 25.00 |
-3425 |
||||||
Variance |
$ 3,425.00 |
Unfavourable-U |
Direct Labor Rate Variance |
||||||
( |
Standard Rate |
- |
Actual Rate |
) |
x |
Actual Labor Hours |
( |
$ 40.00 |
- |
$ 42.20 |
) |
x |
4550 |
-10010 |
||||||
Variance |
$ 10,010.00 |
Unfavourable-U |
Direct Labour Efficiency Variance |
||||||
( |
Standard Hours |
- |
Actual Hours |
) |
x |
Standard Rate |
( |
4635 |
- |
4550 |
) |
x |
$ 40.00 |
3400 |
||||||
Variance |
$ 3,400.00 |
Favourable-F |
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