Silmon Corporation makes a product with the following standard costs: In June th

Question

Silmon Corporation makes a product with the following standard costs:

In June the company produced 5,200 units using 25,690 grams of the direct material and 2,560 direct labor-hours. During the month the company purchased 25,100 grams of the direct material at a price of $5.80 per gram. If materials used are more than the materials purchased, the additional amount is taken from inventory.

The actual direct labor rate was $13.60 per hour and the actual variable overhead rate was $2.90 per hour. The materials price variance is computed when materials are purchased. Variable overhead is applied on the basis of direct labor-hours.

Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase: (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

  Inputs Standard Quantity
or Hours Standard Price
or Rate   Direct materials 4.7 grams $ 6.00 per gram   Direct labor 0.4 hours $ 13.00 per hour   Variable overhead 0.4 hours $ 3.00 per hour

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

Materials quantity variance = (AQ - SQ)*SP = 6*(25690 - 4.7*5200) = 7500 (U)

Part B:

Materials price variance = AQ*(AP - SP) = 25100*(5.8 - 6) = 5020 (F)

Part C:

Labor efficiency variance = (AH - SH)*SR = (2560 - .4*5200)*13 = 6240 (U)

Part D:

Labor rate variance = AH*(AR - SR) = 2560*(13.60 - 13) = 1536 (U)

Part E:

Variable overhead efficiency variance = (AH - SH)*SR = (2560 - .4*5200)*3 = 1440 (U)

Part F:

Variable overhead rate variance = AH*(AR - SR) = 2560*(2.9 - 3) = 256 (F)

Thanks.

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