Question

Hutto Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures. Direct materials (14 lbs. @ $4 per lb.) $56 Direct labor (3 hrs. @ $15 per hr.) 45 During May the company incurred the following actual costs to produce 8,000 units. Direct materials (114,700 lbs. @ $3.80 per lb.) $ 435,860 Direct labor (27,400 hrs. @ $15.10 per hr.). 413,740 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. Round "Rate per hour" answers to 2 decimal places.)

Answer 1

Ans. 1 a	Direct materials price variance = (Standard price   - Actual price) * Actual quantity
	($4 - $3.80) * 114,700
	$0.20 * 114,700
	$22,940	favorable
Ans. 1 b	Direct materials quantity variance = (Standard quantity - actual quantity) * Standard price
	(112,000 - 114,700) * $4
	-2,700* $4
	-$10,800	or   $10,800 unfavorable
	*Standard quantity = Actual output * Standard quantity per unit of output
	8,000 units * 14 lbs.
	112,000 lbs.
Ans. 2 a	Direct labor rate variance = (Standard rate   - Actual rate) * Actual hours
	($15 - $15.10) * 27,400
	-$0.10 * 27,400
	-$2,740	or   -$2,740 unfavorable
Ans. 2 b	Direct labor efficiency variance = (Standard hours - actual hours) * Standard rate
	(24,000 - 27,400) * $15
	-3,400* $15
	-$51,000	or   $51,000 unfavorable
	*Standard hours = Actual output * Standard hours per unit of output
	8,000 units * 3 hrs.
	24,000 hrs.