Question

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

Actual direct materials used	24,000 lbs. at $4.45 per lb.
Actual direct labor used	6,505 hours for a total of $128,799
Actual units produced	36,030

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

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

Budgeted standards for each unit produced are 0.50 pounds of direct material at $4.40 per pound and 10 minutes of direct labor at $20.80 per hour.

(1) Compute the direct materials price and quantity variances.
(2) Compute the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Answer 1

Correct Answer:

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    4.40	-	$                     4.45	)	x	24000
	-1104
	Variance		$             1,104.00			Unfavorable-U

Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	18015	-	24000	)	x	$       4.40
	-26357.94
	Variance		$           26,357.94			Unfavorable-U

Requirement 2:

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                  20.80	-	$                   19.80	)	x	6505
	6505
	Variance		$             6,505.00			Favourable-F

Labor Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	6005	-	6505	)	x	$    20.80
	-10400
	Variance		$           10,400.00			Unfavorable-U

Working:

Actual DATA for		36030	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	24000	$            4.45	$ 1,06,800.00
Direct labor	6505	$         19.80	$ 1,28,799.00

Standard DATA for		36030	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
Direct Material	18015	$            4.40	$      79,338.06
Direct labor	6005	$         20.80	$ 1,24,904.00

End of answer.                                                                                                                                        

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