Question

Exercise 08-15 Direct materials and direct labor variances LO P3 The following describes production activities of Mercer Manufacturing for the year. Actual direct materials used Actual direct labor used Actual units produced 30,000 lbs. at $5.15 per lb. 9,150 hours for a total of $186,660 54,120 Budgeted standards for each unit produced are 0.50 pound of direct material at $5.10 per pound and 10 minutes of direct labor at $21.40 per hour. AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate AQ = Actual Quantity SQ = Standard Quantity AP = Actual Price SP = Standard Price (1) Compute the direct materials price and quantity variances and classify each as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance. Round "Cost per unit" answers to 2 decimal places.) (2) Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)

Answer 1

Standard cost AP SQ Actual cost AQ 30,000 $154,500 AQ 30.000 SP $5.10 SP $5.10 $5.15 27.060 $153,000 $138.006 $1,500 $14.994 Direct materials rate variance Direct materials quantity variance Total Direct material varinace $1.500 Unfavorable $14.994 Unfavorable $16,494 Unfavorable Workings: Standard Quantity 54.120 units * 0.50 pound per unit = 27,060 pounds AH Actual cost XAR 9.150 $20.40 $186,660 AH 9.150 X X $195.810 SR $21.40 Standard cost SH X SR 9.020 X $21.40 $193,028 $9,150 $2.782 Direct labor rate variance Direct labor efficiency variance Total Direct labor varinace $9,150 Favorable $2.782 Unfavorable $6,368 Favorable Workings: Actual hours Standard hours Actual Rate Standard Rate 54.120 units * 1/6 hours per unit = $186,660/9,150 hrs = 9.150 hrs 9,020 hrs $20.40 per hr $21.40 per hr