Question

The following information describes production activities of Mercer Manufacturing for the year. Actual direct materials used 22,000 lbs. at $4.35 per lb. 6,575 hours for a total of Actual direct labor used $128,870 Actual units produced 36,000 Budgeted standards for each unit produced are 0.50 pounds of direct material at $4.30 per pound and 10 minutes of direct labor at $20.60 per hour. 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 and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Answer 1

Answer:- Direct Material price variance= $1100 U.

Direct Material Quantity variance = $17200 U.

Explanation-

1)-Material price variance = (Standard price – Actual price) * Actual quantity used

                                     = ($4.30 per lb. - $4.35 per lb.)*22000 lbs.   

                                       = $1100 Unfavorable

2)-Material Quantity variance = (Standard Quantity- Actual Quantity)*Standard price

                                              =(18000 lbs. – 22000 lbs.)*$4.30 per lbs.

                                             = $17200 Unfavorable

Where:-

Standard Quantity = No. of lb. per unit*Actual output

                               = 0.50 lbs. per unit *36000 units = 18000 lbs

Answer:-Labor rate variance =$6575 F.

Labor time variance = $11845 U.

Explanation:-

1)- Direct Labor rate variance = (Standard rate – Actual rate) * Actual hours

= {$20.60 per hour – ($128870/6575 hours)}*6575 hours   

= $6575 Favorable

2)- Direct Labor Time variance=(Standard hours-Actual hours)*Standard rate per hour

=(6000 hours – 6575 hours)*$20.60 per hour

= $11845 Unfavorable

Where:-

Standard Hours = No. of hours per unit*Actual output

= (10 minutes per unit *36000 units)/60 minutes =6000 hours