Question

Exercise 10-6 (Algo) Direct Materials and Direct Labor Variances [LO10-1, LO10-2]

Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one
unit of Zoom are given below:
Standard Quantity
or Hours
7.20 pounds
0.50 hours
Standard Price or Rate
$2.90 per pound
$ 10.00 per hour
Direct materials
Direct labor
During the most recent month, the following activity was recorded:
a. 16,900.00 pounds of material were purchased at a cost of $2.60 per pound.
b. All of the material purchased was used to produce 2,000 units of Zoom.
c. 800 hours of direct labor time were recorded at a total labor cost of $8,800.
1. Materials price variance
Standard
Cost
$ 20.88
$5.00
Required:
1. Compute the materials price and quantity variances for the month.
2. Compute the labor rate and efficiency variances for the month.
(For all requirements, Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no
effect (i.e., zero variance). Input all amounts as positive values. Round your intermediate calculations to the nearest whole dollar.)

Answer 1

1. Materials variances:

Materials price variance = Actual quantity purchased x (Actual price - Standard price)

= 16,900 x ($2.60 - $2.90)

= $5,070 U (unfavorable)

Materials quantity variance = (Actual quantity used - Standard quantity allowed) x Standard price

= (16,900 - (2,000 x 7.20)) x $2.90

= $5,160 F (favorable)

2. Labor variances:

Labor rate variance = Actual hours x (Actual rate - Standard rate)

= 800 x ($11.00 - $10.00)

= $800 F (favorable)

Labor efficiency variance = (Actual hours - Standard hours allowed) x Standard rate

= (800 - (2,000 x 0.50)) x $10.00

= $4,000 F (favorable)

Note: The standard cost per unit is calculated as follows:

Direct materials cost per unit = Standard quantity x Standard price

= 7.20 x $2.90

= $20.88

Direct labor cost per unit = Standard hours x Standard rate

= 0.50 x $10.00

= $5.00

Therefore, the total standard cost per unit is $25.88.