Q10 Arrow Industries employs a standard cost system in which direct materials in
ID: 2368714 • Letter: Q
Question
Q10 Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product. Use the data for questions 10 to 14. Standard Standard Standard Quantity Price Cost Direct materials 8 pounds $1.80 p/ pd $14.40 Direct labor 0.25 hour $8.00 p/ hr $2.00 During May, Arrow purchased 160,000 pounds of direct material at a total cost of $304,000. The total direct labor wages for May were $37,800. Arrow manufactured 19,000 units of product during May using 142,500 pounds of direct material and 5,000 direct labor hours. The direct material price variance for May is (note that the purchase price variance is based on the amount purchased - while usage variance is based on amount used): Answer $16,000 unfavorable. $14,250 favorable. $16,000 favorable. $14,250 unfavorable. Q11 The direct material quantity variance for May is: Answer $17,100 unfavorable. $14,400 unfavorable. $17,100 favorable. $1,100 favorable. Q12 The direct labor rate variance for May is: Answer $2,090 favorable. $2,200 favorable. $2,000 unfavorable. $1,900 unfavorable. Q13 The direct labor efficiency variance for May is: Answer $2,000 favorable. $2,200 favorable. $1,800 unfavorable. $2,000 unfavorable.Explanation / Answer
(Actual quantity * Actual price) - (Actual quantity * Standard price)
(142500*1.90) - (142500*1.80)
256500-270750=14250 unfavorable
$14,250 unfavorable.
11. The direct material quantity variance for May is:
Answer
(Actual quantity * Standard price) - (Standard quantity*Standard price)
(142500*1.80) - (152000*1.80)
256500-273600=17100 favorable
$17,100 favorable.
12.The direct labor rate variance for May is:
Answer
(Actual Hours * Actual rate) - (Actual Hours * Standard rate)
(5000*7.56) - (5000*8)
37800-40000=2200 favorable
$2,200 favorable.
13. The direct labor efficiency variance for May is:
Answer
(Actual Hours * Standard rate) - (Standard Hours * Standard rate)
(5000*8) - (4750*8)
40000-38000= 2000 unfavorable
$2,000 unfavorable.
14. VERY BRIEFLY (one short paragraph) how might you use the variance information calculated in problems 10 - 13?
The Material Price variance and Material quantity variance, both are unfavourable. This indicates that either the standard were not fixed properly or it is inefficiency of the management to control the Materials.
The Direct labor efficiency variance is unfavourable, whereas direct labor rate variance is favourable. There is a possibility that inefficient labor has been hired at less hourly rate, who has taken more time to complete the jobs.
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