Question

5% of all Echo SC IST per bottle). In addition, statistical analysis has shown that every because of contamination. Required: 1. Compute the standard purchase price for one litre of Echol. 2. Compute the standard quantity of Echol (in litres) per saleable bottle of cleaning solvent. 3. Using the data from parts (1) and (2), prepare a standard cost card showing the standard cost of Echol per bottle of cleaning solvent. EXERCISE 8-2 Material and Labour Variances (CC7, 8, 9, 10) Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labour standards for one unit of Zoom follow: Standard Quantity Standard Price Standard or Hours or Rate Cost Direct materials........... 2.1 kilograms S 5.50 per kilogram $11.55 Direct labour... 0.2 hour 12.00 per hour 2.40 During the most recent month, the following activity was recorded: a. 9,000 kilograms of material were purchased at a cost of $5.20 per kilogram. b. All of the material purchased was used to produce 4.000 units of Zoom. c. A total of 750 hours of direct labour time was recorded at a total labour cost of S10,425. Required: 1. Compute the direct materials price and quantity variances for the month. 2. Compute the direct labour rate and efficiency variances for the month.

Answer 1

1. Compute the direct materials price and quantity variances for the month? Answer: The formula for direct materials price and quantity variances are as follows: Direct Materials Price Variance - Actual Quantity X (Actual Price - Standard Price) Direct Materials Quantity Variance - Standard Price per unit X (Actual Usage - Standard Usage) By substituting the given values we can get the variances as follows: Direct Materials Price Variance = 9,000 X($ 5.20 - $ 5.50) Direct Materials Price Variance = ($ 2,700) Direct Material Quantity Variance = $5.50 X (9,000 - ( 4,000 X 2.1)) Direct Material Quantity Variance = $3,300 2. Compute the direct labor rate and efficieny variances for the month? Answer: The formula for direct labor rate and efficieny variances are as follows: Direct Labor Rate Variance = Actual hours X (Actual rate - Standard rate) Direct Labor Efficiency Variance - Standard rate X (Actual hours - Standard hours) By substituting the given values we can get the variances as follows: Direct Labor Rate Variance = 750 X($ (10,425 / 750) - $ 12.00) Direct Labor Rate Variance = $1,425 Direct Labor Efficiency Variance = $12 X (750 - (4,000 X 0.2)) Direct Labor Efficiency Variance = ($ 600)