Question

The following information describes the production activities of Mercer Manufacturing for the yearActual direct materials used 30,000 lbs. at $5.15 per 1bActual direct labor used 9,150 hours for a total of $186, 660Actual units produced 54,120Budgeted standards for each unit produced are 0.50 pounds of direct material at $5.10 per pound and 10 minutes at $21.40 per hourAQ =Actual QuantitySQ= Standard QuantityAP =Actual PriceSP= Standard PriceAH =Actual HoursSH= Standard HoursAR= Actual RateSR =Standard Rate(1) Compute the direct materials price and quantity variances.(2) Compute the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Answer 1

Standard quantity = Actual units produced × 0.50 pound per unit

= 54,120 × 0.50

= 27,060 pounds

Standard hours = Actual units produced × 1/6 hour per unit

= 54,120 × 1/6

= 9,020 hours

Actual rate per hour = $186, 660 ÷ 9,150 hours

= $20.4

(a) (i) Direct material price variance:

= (AQ × AP) - (AQ × SP)

= (30,000 × $5.15) - (30,000 × $5.10)

= $154,500 - $153,000

= $1,500 Unfavorable

(ii) Direct material quantity variance:

= (AQ × SP) - (SQ × SP)

= (30,000 × $5.10) - (27,060 × $5.10)

= $153,000 - $138,006

= $14,994 Unfavorable

(b) (i) Direct labor rate variances:

= (AH × AR) - (AH × SR)

= (9,150 × $20.4) - (9,150 × $21.40)

= $186,660 - $195,810

= $9,150 Favorable

(ii) Direct labor efficiency variances:

= (AH × SR) - (SH × SR)

= (9,150 × $21.40) - (9,020 × $21.40)

= $195,810 - $193,028

= $2,782 Unfavorable