Question

The following describes production activities of mercer manufacturing for the year.

Actual raw materials used 17,000 lbs. at $4.20 per lb.
Actual factory payroll 5,550 hours for a total of $106,005
Actual units produced 30,030
Budgeted standards for each unit produced are .50 pound of direct material at $4.00 per pound and 10 minutes of direct labor at $20.00 per hour.
1. Compute the direct materials price and quanity variances and classify each as favorable or unfavorable.
2. Compute the direct labor rate and efficincy variances and classify each as favorable or unfavorable

Answer 1

Answer and Explanation:

1. The computation of direct materials price and quantity variances is shown below:-

Actual Cost = Actual quantity × Actual price

= 17,000 × $4.20

= $71,400

The Standard cost for actual quantity = Actual quantity × Standard price

= 17,000 × $4.00

= $68,000

Standard Cost = Standard quantity × Standard price

= (30,030 ÷ 0.50) × $4.00

= 15,015 × $4.00

=$60,060

Now the material price variance is

= Actual Quantity × (Standard Price - Actual Price)

= 17,000 × ($4 - $4.20)

= 17,000 × $0.20

= $3,400 unfavorable

The material quantity variance is

= Standard Price × (Standard Quantity - Actual Quantity)

= $4 × (15,015 - 17,000)

= $4 × 1,985

= $7,940 unfavorable

2. The computation of direct labor rate and efficiency variances is shown below:-

Actual Cost = Actual hours × Actual rate

= 5550 × $19.10

= $106,005

The Standard cost for actual quantity = Actual hours × Standard rate

= 5,550 × $20.00

= $111,000

Standard Cost = Standard hours × Standard rate

= 5005 × $20.00

= $100,100

The labor rate variance is

= Actual Hours × (Actual rate - standard rate)

= 5,550 × ($19.10 per hour - $20 per hour)

= 5,550 × $0.90 per hour

= $4,995 favorable

The labor efficiency variance is

= Standard Rate × (Actual hours - Standard hours)

= $20 per hour × (5,550hours - 5,005 hours)

= $20per hour × 545 hours

= $10,900 unfavorable