Question

Reed Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures. $42 Direct materials (14 lbs. @ $3 per lb.) Direct labor (3 hrs. @ $15 per hr.) 45 During June the company incurred the following actual costs to produce 9,000 units. Direct materials (128,900 lbs. @ $2.80 per lb.) Direct labor (31,000 hrs. @ $15.20 per hr.). $360,920 471,200 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. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.) (2) Compute the direct labor rate variance and the direct labor efficiency variance. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)

Answer 1

1.

Compute direct materials price and quantity variance as follows:

Actual Cost								Standard Cost
AQ		AP		AQ		SP		SQ		SP
128900		2.80		128900		3.00		126000		3.00
	360920				386700				378000
			25780				8700
Direct materials price variance				25780	Favorable
Direct materials quantity variance				8700	Unfavorable
Total direct materials variance				17080	Favorable

2.

Compute direct labor rate and efficiency variance as follows:

Actual Cost								Standard Cost
AH		AR		AH		SR		SH		SR
31000		15.20		31000		15.00		27000		15.00
	471200				465000				405000
			6200				60000
Direct labor rate variance				6200	Unfavorable
Direct labor efficiency variance				60000	Unfavorable
Total direct labor variance				66200	Unfavorable