Question

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows:

Amber Company produces iron table and chair sets. During October, Amber's costs were as follows: Actual purchase price Actual direct labor rate Standard purchase price Standard quantity for sets produced Standard direct labor hours allowed Actual quantity purchased in October Actual direct labor hours Actual quantity used in October Direct labor rate variance $ 2.20 per Ib. $ 7.40 per hour $ 2.00 per lb. 960,000 lbs. 10,000 1,105,000 lbs. 9,000 990,000 lbs. $5,400 F Required: 1. Calculate the total cost of purchases for October. Total Purchases 2. Compute the direct materials price variance based on quantity purchased. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.) Direct Materials Price Variance

Answer 1

(1)

for October,

total purchased = actual quantity purchased x actual purchase price

= 1105000 x $2.20

= $2431000

(2)

Material price variance = actual quantity x (standard price - actual price)

= 1105000 x ($2 - $2.20)

= $221000 Unfavorable

(3)

Material quantity variance = standard price x (standard quantity - actual quantity)

= $2 x (960000 - 1105000)

= $290000 Unfavorable

(4)

Labor rate variance = actual hours x (standard rate - actual rate)

5400 = 9000 x (standard rate  - $9.75)

Standard rate - $9.75 = 5400/9000

standard rate = $0.6 + $9.75

= $10.35

(5)

Labor efficiency variance = standard rate x (standard hours - actual hours)

= $10.35 x (10000 - 9000)

= $10350 Favorable