Question

Help Save & Exit Submit Reed Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures Direct materials (15 lbs. $4 per 1b.) Direct labor (2 hrs.@ $15.00 per hr.) $60 30 During June the company incurred the following actual costs to produce 8,600 units. Direct materials (131,400 lbs.$3.70 per 1b.) Direct labor (20,700 hrs. @ $15.10 per hr.) $486,180 312,570 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. Next > 1 of 5 Prev 90 ENG search DELL

Answer 1

(1) Compute the direct materials price and quantity variances. Actual Cost AQ X AP AQ 131,400 $3.70 131,400 $486,180 $39,420 SP $4.00 Standard Cost SQL X / 129,000 $516,000 SP $4.00 $525,600 $9,600 Direct materials price variance Direct materials quantity variance Total direct materials variance $39,420 Favorable 9,600 Unfavorable $29,820 Favorable Explanation: Standard Quantity Allowed = (15 lbs. * 8,600 units) Standard Quantity Allowed = 129,000 lbs. Direct materials price variance = (Actual Quantity x Actual Price) - (Actual Quantity x Standard Price) Direct materials price variance = (Actual Price - Standard Price) * Actual Quantity Direct materials price variance = ($3.70 per lb. - $4.00 per lb.) * 131,400 lbs. Direct materials price variance = $39,420 favorable Direct materials quantity variance = (Actual Quantity Used Standard Rate) - (Standard Quantity Allowed * Standard Rate) Direct materials quantity variance = (131,400 lbs. * $4.00 per lb.) - (129,000 lbs. * $4.00 per lb.) Direct materials quantity variance = $525,600 - $516,000 Direct materials quantity variance = $9,600 unfavorable

2. Compute the direct labor rate variance and the direct labor efficiency variance. Indicate whether eachvariance is favorable or unfavorable. Actual Cost Standard Cost AHLX AR AH X L SR SH X 20,700 * $15.10 20,700 * $15.00 17,200 * $312,570 $310,500 $258,000 $2,070 $52,500 SR $15.00 Direct labor rate variance Direct labor efficiency variance Total direct labor variance $2,070 Unfavorable 52,500 Unfavorable $54,570 Unfavorable Explanation: Standard hours = 8,600 units x 2 hrs. per unit Standard hours = 17,200 hours. Direct labor rate variance = Direct labor rate variance = Direct labor rate variance = Direct labor rate variance = (Actual Hours x Actual Rate) - (Actual Hours x Standard Rate) (20,700 hours * $15.10 per hr.) -(20,700 hours * $15.00 per hr.) $312,570 – $310,500 $2,070 unfavorable Direct labor efficiency variance = Direct labor efficiency variance = Direct labor efficiency variance = Direct labor efficiency variance = |(Actual hours worked * Standard rate) - (Standard hours allowed * Standard rate) (20,700 hours * $15.00 per hr.) - (17,200 hours * $15.00 per hr.) $310,500 - $258,600 $52,500 unfavorable