Question

Hutto Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.

Direct materials (15 lbs. @ $3 per lb.)			$45
Direct labor (3 hrs. @ $14 per hr.)			42

During May the company incurred the following actual costs to produce 8,200 units.

Direct materials (126,300 lbs. @ $2.80 per lb.)		$	353,640
Direct labor (29,400 hrs. @ $14.10 per hr.).			414,540

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

Actual DATA for		8200	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	126300	$            2.80	$   3,53,640.00
Direct labor	29400	$         14.10	$   4,14,540.00
Variable Overhead	6800	$            6.05	$      41,140.00

Standard DATA for		8200	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 15 lbs x 8200 Units)=123000 lbs	$     3.00	$    3,69,000.00
Direct labor	( 3 hours x 8200 Units)=24600 hours	$   14.00	$    3,44,400.00
Variable Overhead	( 8.4 Direct labor hours x 8200 Units)=68880 Direct labor hours	$     5.60	$    3,85,728.00

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$            3.00	-	$            2.80	)	x	126300
	25260
	Variance		$ 25,260.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	123000	-	126300	)	x	$       3.00
	-9900
	Variance		$   9,900.00			Unfavourable-U

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$          14.00	-	$         14.10	)	x	29400
	-2940
	Variance		$   2,940.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	24600	-	29400	)	x	$    14.00
	-67200
	Variance		$ 67,200.00			Unfavourable-U