Question

The following describes production activities of Mercer Manufacturing for the year. Actual direct materials used Actual direct labor used Actual units produced 31,000 lbs. at $5.80 per lb. 10,600 hours for a total of $217,300 63,000 1,600 hour. 29.9 5. IS DE $217,300 Budgeted standards for each unit produced are 0.50 pound of direct material at $5.75 per pound and 10 minutes of direct labor at $21.50 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.)

Answer 1

Ans. 1	Actual Cost		Actual quantity at Standard price		Standard Cost
	Actual quantity * Actual price		Actual quantity * Standard price		Standard quantity * Standard price
	31,000 * $5.80		31,000 * $5.75		31,500 * $5.75
	$179,800		$178,250		$181,125
		-$1,550		$2,875
	Materials price variance	-$1,550	or   $1,550 Unfavorable
	Materials quantiy variance	$2,875	or   $2,875 Favorable
	Total Materials Variance	$1,325	or   $1,325 Favorable
	*Materials price variance = Actual quantity at standard price - Actual cost
	*Materials quantity variance = Standard cost - Actual quantity at standard price
	*Standard quantity (SQ)   =   Actual output * Materials quantity per unit of output
	63,000 * 0.50 pounds
	31,500
	*If the standard cost, price and quantity are higher than the actual it means the variance is favorable.
	*If the standard cost, price and quantity are lower than the actual it means the variance is unfavorable.
Ans. 2	Actual Cost		Actual quantity at Standard price		Standard Cost
	Actual hours * Actual rate		Actual hours * Standard rate		Standard hours * Standard rate
	10,600 * $20.50		10,600 * $21.50		10,710 * $21.50
	$217,300		$227,900		$230,265
		$10,600		$2,365
	Labor rate variance	$10,600	Favorable
	Labor efficiency variance	$2,365	Favorable
	Total Labor Variance	$12,965	Favorable
	*Labor rate variance = Actual quantity at standard price - Actual cost
	*Labor efficiency variance = Standard cost - Actual quantity at standard price
	*Total labor variance = Labor rate variance + Labor efficiency variance
	*Actual rate   = Actual labor cost / Actual hours
	$217,300 / 10,600
	$20.50	per hour
	*Standard hours per unit of output =   10 minutes = 10 / 60 = 0.17 hours
	Standard hours = Actual output * standard hours per unit of output
	63000 units * 0.17 hours
	10,710   hours
	*If the standard cost, rate and hours are higher than the actual it means the variance is favorable.
	*If the standard cost, rate and hours are lower than the actual it means the variance is unfavorable.