Question

Reed Corp, has set the following standard direct materials and direct labor costs per unit for the product it manufactures. Direct materials (16 lbs. @ 54 per lb.) Direct labor (4 hrs. $15 per hr.) During June the company incurred the following actual costs to produce 8.400 units Direct materials (136.700 lbs. 33.70 per lb.) Direct labor (37,200 hrs. $15.10 per hr.). $505,790 561, 720 AH = Actual Hours SH Standard Hours AR Actual Rate SR Standard Rate AO - Actual Quantity SO 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 laborate variance and the direct labor eficiency variance indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)

Answer 1

• Requirement 1

Actual Cost								Standard Cost
AQ	x	AP		AQ	x	SP		SQ = 8400 units x 16 per unit	x	SP
136,700	x	$           3.70		136,700	x	$            4.00		134,400	x	$               4.00
	$             505,790.00				$          546,800.00				$                   537,600.00
Price Variance - Material			$         41,010.00	Quantity Variance - Material			$       9,200.00
Direct material Price Variance					$                                                                      41,010.00			Favourable
Direct material Quantity Variance					$                                                                        9,200.00			Unfavourable
Total Direct material Variance					$                                                                      31,810.00			Favourable
Note:
>	Material Price Variance is favourable because Actual price (AP) is LESS than Standard Price (SP)
>	Material Quantity Variance is unfavourable because Actual Qty (AQ) is More than Standard Qty (SQ)

• Requirement 2

Actual Cost								Standard Cost
AH	x	AR		AH	x	SR		SH = 8400 units x 4 per unit	x	SR
37,200	x	$                15.10		37,200	x	$        15.00		33,600	x	$              15.00
	$          561,720.00				$     558,000.00				$           504,000.00
Rate Variance - Labor			$         3,720.00	Efficency Variance - Labor			$       54,000.00
Labor Rate Variance					$                                                                   3,720.00			Unfavourable
Labor Efficiency Variance					$                                                                 54,000.00			Unfavourable
Total Labor Cost (Spending) Variance)					$                                                                 57,720.00			Unfavourable
Note:
>	Labor Price Variance is Unfavourable because Actual rate (AR) is MORE than Standard Rate (SR)
>	Labor quantity or Efficiency Variance is unfavourable because Actual Hrs (AH) is MORE than Standard Hrs (SH)