Question

Exercise 21-12 Direct materials and direct labor variances LO P2 Reed 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.) Direct labor (3 hrs. @ $15.00 per hr.) $56 45 During June the company incurred the following actual costs to produce 8,900 units. Direct materials (126,800 lbs. @ $3.75 per lb.) Direct labor (30,900 hrs. @ $15.15 per hr.). $475,500 468,135 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.

Answer 1

Requirement 1

Material Price Variance	$         31,700.00	Favourable-F
Material quantity variance	$           8,800.00	Unfavourable-U

Requirement 2

Labor rate variance	$           4,635.00	Unfavourable-U
Labor Efficiency variance	$         63,000.00	Unfavourable-U

Working

Standard DATA for		8900	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 14 lbs x 8900 Units)=124600 lbs	$              4.00	$          498,400.00
Direct labor	( 3 Hour x 8900 Units)=26700 Hour	$           15.00	$          400,500.00

.

		8900	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	126800	$            3.75	$       475,500.00
Direct labor	30900	$         15.15	$       468,135.00

.

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    4.00	-	$                     3.75	)	x	126800
	31700
	Variance		$           31,700.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	124600	-	126800	)	x	$              4.00
	-8800
	Variance		$             8,800.00			Unfavourable-U

.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                  15.00	-	$                   15.15	)	x	30900
	-4635
	Variance		$             4,635.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	26700	-	30900	)	x	$           15.00
	-63000
	Variance		$           63,000.00			Unfavourable-U