Question

Reed Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures. 55 Direct materials (14 lbs. @ $4 per lb.) Direct labor (3 hrs. @ $15.00 per hr.) 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

1
Actual Cost								Standard Cost
AQ	x	AP		AQ	x	SP		SQ	x	SP
126,800	x	3.75		126,800	x	$4.00		124,600	x	$4.00
	475500				507200				498400
			31700				8800
Direct materials price variance				31700	Favorable
Direct materials quantity variance				8800	Unfavorable
Total direct materials variance				22900	Favorable
2
Actual Cost								Standard Cost
AH	x	AR		AH	x	SR		SH	x	SR
30,900	x	$15.15		30,900	x	$15.00		26,700	x	$15.00
	468135				463500				400500
			4635				63000
Direct labor rate variance				4635	Unfavorable
Direct labor efficiency variance				63000	Unfavorable
Total direct labor variance				67635	Unfavorable