Question

The following describes production activities of Mercer Manufacturing for the year.

Actual direct materials used	22,000 lbs. at $4.35 per lb.
Actual direct labor used	6,575 hours for a total of $128,870
Actual units produced	36,000

Budgeted standards for each unit produced are 0.50 pound of direct material at $4.30 per pound and 10 minutes of direct labor at $20.60 per hour.

AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

(1) Compute the direct materials price and quantity variances and classify each as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance. Round "Cost per unit" answers to 2 decimal places.)
(2) Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)
  

1.

Compute the direct materials price and quantity variances and classify each as favorable or unfavorable. (Do not round intermediate calculations.)

	Actual Cost Standard Cost

2.

Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable. (Do not round intermediate calculations.)

	Actual Cost Standard Cost

Answer 1

1.
Direct Material Price Variance = (actual Price - Standard Price) x Actual Quantity
= ($4.35 - $4.30) x 22000 = $1100 (U)

Direct Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
= (22000 - 18000) x $4.30 = $17200 (U)
Standard Quantity = 36000 x 0.50 = 18000 pounds

2.
Direct labor rate variance = (Actual rate - Standard rate) x Actual hours
= ($19.60 - $20.60) x 6575 = $6575 (F)
Actual rate = $128870 / 6575 = $19.60

Direct labor efficiency Variance = (Actual hours - Standard hours) x Standard rate
= (6575 - 6000) x $20.60 = $11845 (U)
Standard hours = 36000 x 1/6 = 6000 hours