Question

Exercise 23-12 Direct materials and direct labor variances LO P2 Reed Corp, has set the following standard direct materials and direct labor costs per unit for the product it manufactures Direct materials (16 lbs. @ 4 per 1b. Direct labor (3 hrs. @ $16 per hr.) During June the company incurred the following actual costs to produce 8,300 units. Direct materials (135,700 lbs. @ $3.75 per lb.) Direct labor (28,100 hrs. @ $16.15 per hr.). $588,875 453,815 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, (2) Compute the direct labor rate variance and the direct labor efficiency variance Indicate whether each variance is favorable or unfavorable

Answer 1

Solution 1:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
135700	$3.75	$508,875.00			135700	$4.00	$542,800.00			132800	$4.00	$531,200.00
			$33,925.00	Favorable				$11,600.00	Unfavorable
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$33,925.00	Favorable
Direct material quantity variance					$11,600.00	Unfavorable
Total direct material variance					$22,325.00	Favorable

Solution 2:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
28100	$16.15	$453,815.00			28100	$16.00	$449,600.00			24900	$16.00	$398,400.00
			$4,215.00	Unfavorable				$51,200.00	Unfavorable
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$4,215.00	Unfavorable
Direct Labor Efficiency variance					$51,200.00	Unfavorable
Total direct labor variance					$55,415.00	Favorable