Question

Reed Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures Direct materials (15 lbs. $5 per lb.) Direct labor (3 hrs. $15 per hr.) During June the company incurred the following actual costs to produce 8,300 units. Direct materials (127,200 lbs. 54.80 per lb.) Direct labor (28.900 hrs. $15.20 per hr.). 5610,560 439.289 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 laborrate variance and the direct labor efficiency variance Indicate whether each variance is favorable or unfavorable

Answer 1

Actual Cost				Standard Cost
Quantity	Price	Cost		Quantity	Price	Cost
124,500	5	622,500		127200	4.80	610,560
Direct material price Variance = (Standard Price - Actual Price)*Actual Quantity
=(5-4.8)*127,200 = $25,440 F
Direct Material Quantity Variance = (Standard Quantity - Actual Quantity)*Standard Price
=(124500-127200)*5 = $13,500 U
Labor
Actual Cost				Standard Cost
Quantity	Price	Cost		Quantity	Price	Cost
24,900	15	373,500		28900	15.20	439,280
Direct Labor Rate Variance = (Standard Rate - Actual rate)*Actual Hours
=(15-15.2)*28,900 = $5,780 U
Labor efficiecny Varience = (Standard Hours - Actual Hours)*Standard rate
=(24,900-28900)*15 = $60,000 U