Question

Mickley Corporation produces two products, Alphabs and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials, X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis): Product Alpha Zeta 7 Raw Material X442 Y661 2.0 kilos 1.5 liters 4.0 kilos 3.0 liters Standard Labor Time Sintering Finishing 0.30 hours 0.90 hours 0.40 hours 1.00 hours Information relating to materials purchased and materials used in production during May follows: Material X442 Y661 Purchases 14,400 kilos 15,400 liters Purchase Cost $59,040 $26,180 Standard Price $3.90 per kilo $1.80 per liter Used in Production 8,900 kilos 13,400 liters The following additional information is available: a. The company recognizes price variances when materials are purchased. b. The standard labor rate is $20.00 per hour in Sintering and $19.00 per hour in Finishing. c. During May, 1,200 direct labor-hours were worked in Sintering at a total labor cost of $27,480, and 2,890 direct labor-hours were worked in Finishing at a total labor cost of $60,690. d. Production during May was 1,900 Alphabs and 1,300 Zeta7s.

Answer 1

I. Standard cost card:

PARTICULARS	Std hrs/Qty	Std price/rate	Std cost ($)
Alpha 6
Direct Material X442	2.0 kilo	3.9	7.8
Direct Material Y661	1.5 Litres	1.8	2.7
Direct Labour -Sintering	0.3hrs	20	6
Direct Labour - Finishing	0.9 hrs	19	17.1
Total			33.6
Zeta
Direct Material X442	4.0 kilo	3.9	15.6
Direct Material Y661	3.0 L	1.8	5.4
Direct Labour -Sintering	0.4 hours	20	8
Direct Labour - Finishing	1 hours	19	19
Total			48

II Material Variance

Direct material X442

A. Material Quantity variance : (SQ*SP) - (AQ*SP)

SQ*SP

Alpha - (1900*2)*7.8 = $29640

Zeta - (1300*4)*7.8 = $40560

Total = $70200

Therefore material quantity variance =70200 - (14400*7.8)

= $72120(A)

B. Price Variance =(AQ*SP) - (AQ*AP)

= (14400*$7.8) - ($59040)

= $53280(F)

Direct material Y661

A. Material Quantity variance : (SQ*SP) - (AQ*SP)

SQ*SP

Alpha - (1900*$1.5)*1.8 =$5130

Zeta - (1300*$3.0)*1.8 = $7020

Total =$12150

Therefore material quantity variance =$12150 - (15400*$1.8)

= $15570(A)

B. Price Variance =(AQ*SP) - (AQ*AP)

=(15400*$1.8) - $26180

= $27720 - $26180

= $1540 (F)

III Labor Variance

Sintering

A. Labor efficiency variance : (SH*SR) - (AH*SR)

SH*SR

Alpha - (1900*$0.3)*20 =$11400

Zeta - (1300*$0.4)*20 = $10400

Total =$21800

Therefore Labor efficiency variance =$21800 -(1200*$20)

= $2200(A)

B. Rate Variance =(AH*SR) - (AH*AR)

=(1200*$20) - ($27480)

= $3480(A)

Finishing

A. Labor efficiency variance : (SH*SR) - (AH*SR)

SH*SR

Alpha - (1900*$0.9)*$19 =$32490

Zeta - (1300*$0.9)*$19 = $22230

Total =$54720

Therefore Labor efficiency variance =$54720 -(2890*$19)

= $190(A)

B. Rate Variance =(AH*SR) - (AH*AR)

=(2890*$19) - $(60690)

= $5780(A)