The Bennett Company uses standard costing. The company makes and sells a single
ID: 2372024 • Letter: T
Question
The Bennett Company uses standard costing. The company makes and sells a single products called "The Hopper". The following data are for the month of October. Note: all materials purchased was used in production. There were no beginning or ending raw materials inventories.
Actual cost of direct labor $65,975
Labor rate variance 2,275 U
Total labor variance 7,175 U
Standard cost per direct labor hour $7
Standard cost per pound of material $6
Actual pounds of material used 11,200
Material price variance $2,800 F
Standard pounds of material per unit 2.5
Total materials variance $1,400 U
1.)
The total number of units of "The Hopper" produced during October was
A.)9,100
B.)4,480
C.)8,400
D.)4,200
2.)
The standard direct labor hours allowed to produce one unit of "The Hopper" was
A.)2 hours
B.)3 hours
C.)1.75 hours
D.)2.17 hours
3.)
The actual labor cost per hour was
A.)$7.00
B.)$7.85
C.)$7.25
D.)$8.00
4.)
The actual material cost per pound was
A.)$6.40
B.)$5.75
C.)$5.40
D.)$6.25
Explanation / Answer
1. D 2. A 3. C 4. B
Solutions:
1) Materials efficency variance* = (actual quantity - standard quantity) x standard price
*Total materials variance - materials rate variance = materials efficency variance. Since the total variance is unfavorable and the rate variance is favorable, we know that the efficency variance is unfavorable. For mathmatical purposes favorable variances are stated as negatives to show they are opposite from unfavorable variances.
1,400 - (-2,800) = (11,200 - SQ) x $6
4,200 / $6 = 11,200 - SQ
700 - 11,200 = - SQ
SQ = 10,500 lbs
SQ/unit = 10,500 lbs / 2.5 lbs per unit
Units produced = 4,200
To solve #2 & #3 you must first calculate the actual hours (AH).
Direct labor rate variance = (actual rate x actual hours)* - (standard rate x actual hours)
* this value is given as total cost
2,275 = 65,975 - ($7 x AH)
-63,700 = -$7 x AH
AH = 9,100 hours
2) DL efficency variance = (actual hours - standard hours) x standard rate
7,175 - 2,275 = (9,100 - SH) x $7
4,900 = (9,100 - SH) x $7
700 = 9,100 - SH
SH = 8,400
SH/unit = 8,400 hours / 4,200 units = 2 hrs/unit
3) DL rate variance = (AR - SR) x AH
2,275 = (AR - 7) x 9,100
2,275 / 9,100 = AR - 7
.25 = AR - 7
AR = $7.25
4) materials rate variance = (AP - SP) x AQ
- 2,800* = (AP - 6) x 11,200
- 0.25 = AP - 6
AP = $5.75
*remember this is represented as a negative value since the variance is favorable
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