Question

Talia Company produces a single product. The company has set standards as follows for materials and labour:

	Direct Materials	Direct Labour
Standard quantity or hours per unit	? kilograms		1.25 hours
Standard price or rate.	? per kilogram	$	10 per hour
Standard cost per unit	?	$	11.25

During the past month, the company purchased 3,000 kilograms of direct materials at a cost of $8,250. All of this material was used in the production of 700 units of product. Direct labour cost totalled $6,825 for the month. The following variances have been computed:

Materials quantity variance	$	600	U
Total materials variance	$	150	F
Labour efficiency variance	$	2,250	F
Required: 1. Compute the following for direct labour. a. b. C. Standard price per kilogram for materials. Standard quantity allowed for materials for the month's production Standard quantity of materials allowed per unit of product. kgs. kgs per unit. 2. Compute the following for materials price variance. (Round your answers to 2 decimal places.) a. Actual direct labour cost per hour for the month b. Labour rate variance

Answer 1

Solution 1:

Material price variance = Total material variance - Material quantity variance

= $150 F - $600 U = $750 F

Actual price of material = $8,250 /3000 = $2.75 per Kg

(SP - AP) *AQ = $750

(SP - $2.75) * 3000 = $750

Standard price per Kg = $3 per Kg

Material quantity variance = $600 U

(SQ - AQ) * SP = -$600

= (AQ - 3000) *$3 = - $600

Standard quantity = 2800 Kg

Standard quantity of material allowed per unit of output = 2800 /700 = 4 Kg per unit

Solution 2:

Labor efficiency variance = $2,250 F

(SH - AH) * SR = $2,250

(700*1.25 - AH) * $10 = $2,250

Actual hours = 650 hours

Actual direct labor cost per hour = $6,825/ 650 = $10.50 per hour

Labor rate variance = (SR - AR) * AH = ($10 - $10.50) * 650 = $325 U