Question

Problem S (Supplemental Problem #2) - Compute materials and labor variances Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following standard cost sheet: Direct material (5 lbs. 52.60) $ 13.00 Direct labor(0.75 h. SI8.00) S 13.50 Fixed overhead (0.75 hr. 54.00) S 300 Variable overhead (0.75 hr. 83.00) $ 2.25 Standard cost per unit S31.75 Algers computes its overhead rates using practical volume, which is 54.000 units. The actual results for the year areas follow a Units produced: 53,000 b. Direct materials purchased: 274,000 pounds at $2.50 per pound e Direct materials used: 270,300 pounds d Direct labor: 40,100 hours at $17.95 per hour e Fixed overhead: S161,700 f. Variable overhead: $122.000 Required: (circle For U to indicate whether the variance is farverable er unfavorable) a. Compute the materials price variance: b. Compute the materials quantity usage variance: For U c. Compute the total materials variance: For U d. Compute the labor rate variance: Foru e. Compute the labor efficiency variance f. Compute the total labor variance: You must show

Answer 1

Solution :

a. Material price variance = (SP - AP) * AQ Purchased = ($2.60 - $2.50) * 274000 = $27,400 F

b. Material quantity variance = (SQ - AQ) * SP = (53000*5 - 270300) * $2.60 = $13,780 U

c. Total material variance = MPV + MUV = $27,400 F + $13,780 U = $13,620 F

d. Labor rate variance = (SR - AR) * AH = ($18 - $17.95) * 40100 = $2,005 F

e. Labor efficiency variance = (SH - AH) * SR = (53000*0.75 - 40100) * $18 = $6,300 U

f. Total labor variance = Labor rate variance + Labor efficiency variance = $2,005 F + $6,300 U = $4,295 U