Talia Company produces a single product. The company has set standards as follow

Question

Talia Company produces a single product. The company has set standards as follows for ­materials and labour:

d

During the past month, the company purchased 3,000 kilograms of direct materials at a cost of $8,250. All of this material was used in the production of 700 units of product. Direct ­labour cost totalled $6,825 for the month. The following variances have been computed:

d

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Required:

For direct materials:

Compute the standard price per kilogram for materials.

Compute the standard quantity allowed for materials for the month’s production.

Compute the standard quantity of materials allowed per unit of product.

For direct labour:

Compute the actual direct labour cost per hour for the month.

Compute the labour rate variance.

Direct Direct MaterialsLabour Standard quantity or hours per unit Standard price or rate kilograms ? per kilogram 25 hours $10 per hour $1250

Explanation / Answer

Given: Material Quantity/usage variance 600U Total material variance 150F Labour efficiency variance 2250F Material labour Standard hours per unit ? 1.25 hours Standard price ? 10 per hour Standard cost per unit ? $12.5 3000 direct materials at $ 8250 actual quantity produced 700 units direct labour cost $6825 Actual price per raw material=8250/3000=$ 2.75 Standard hours for actual output=700*1.25=875hours Let x be actual hours for actual output labour efficiency variance=standard rate(standard hours for actual output-Actual hours) 2250=10(875-x) 2250=8750-10x 10x=6500 x=650hours Direct labour cost=6825 direct labour cost per hour=6825/650=$ 10.5 per hour Labour rate variance=Actual time*(standard rate-actual rate)                                          =650*(10-10.5)                                          $ 325 U Let standard quantity for actual output be'y' Let standard price for actual output be 'z' Total material variance=(standard quantity*standard price)-(Actual quantity*actual price) 150=(y*z)-8250 material price variance =actual quantity*(Standard price-actual price) Material Price variance=3000(z-2.75)----(1) material usage variance=standard price(standard quantity-actual quantity) 600 U =z(y-3000) Total material variance=material usage variance+material price variance 150=-600+3000(z-2.75) 150=-600+3000z-8250 150=-8850+3000z 3000z=9000 z=9000/3000=$ 3 150=(y*3)-8250 150=3y-8250 y=8400/3=2800units Standard quantity allowed per unit of product=2800/700= 4 units standard quantity for actual output=2800 units standard price for actual output =$ 3 Labour rate variance=$ 325U direct labour cost per hour=$ 10.5

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