Question

The following information describes production activities of Mercer Manufacturing for the year 16,000 lbs. at $4.05 per lb. 5,545 hours for a total of $105,355 30,000 Actual direct materials used Actual direct labor used Actual units produced Budgeted standards for each unit produced are 0.50 pounds of direct material at $4.00 per pound and 10 minutes of direct labor at $20 per hour (1) Compute the direct materials price and quantity variances. Actual Cost Standard Cost (2) Compute the direct labor rate and efficiency variances Actual Cost Standard Cost

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
	16,000 * $4.05		16,000 * $4.00		15,000 * $4.00
	$64,800		$64,000		$60,000
		-$800		-$4,000
	Materials price variance	-$800	or   $800 Unfavorable
	Materials quantiy variance	-$4,000	or   $4,000 Unfavorable
	Total Materials Variance	-$4,800	or   $4,800 Unfavorable
	*Materials price variance = Actual quantity at standard price - Actual cost
	*Materials quantity variance = Standard cost - Actual quantity at standard price
	*Standard quantity (SQ)   =   Actual Number of units produced * Materials quantity per unit of output
	30,000 * 0.50 pounds
	15,000
	*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
	5,545 * $19		5,545 * $20		5,100 * $20
	$105,355		$110,900		$102,000
		$5,545		-$8,900
	Labor rate variance	$5,545	Favorable
	Labor efficiency variance	-$8,900	or   $8,900 Unfavorable
	Total Labor Variance	-$3,355	or   $3,355 Unfavorable
	*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
	$105,355 / 5,545
	$19.00	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
	30,000 units * 0.17 hours
	5,100
	*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.