Exercise 10-33 Materials and Labor Variances At the beginning of the year, Shult

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Question

Exercise 10-33 Materials and Labor Variances

At the beginning of the year, Shults Company had the following standard cost sheet for one of its plastic products:

Direct materials (6 lbs. @ $5)

$30.00

Direct labor (2 hrs. @ $12)

24.00

Standard prime cost per unit

$54.00

The actual results for the year are as follows:

a.Units produced: 350,000.

b.Materials purchased: 1,860,000 pounds @ $5.10.

c.Materials used: 1,850,000 pounds.

d.Direct labor: 725,000 hours @ $11.85.

Required:

1.Compute price and usage variances for materials.

2.Compute the labor rate and labor efficiency variances.

Direct materials (6 lbs. @ $5)

$30.00

Direct labor (2 hrs. @ $12)

24.00

Standard prime cost per unit

$54.00

1. Material price variance = (S.P. - A.P) x A.Q

= (5 - 5.10)x1850000

= 185000 U

Material usage variance = (SQ - AQ)x SP

=(6 x 350000 - 1850000) x 5

= $1250000 F

2. Labour rate variance = (S.R - A.R.)xA.Hrs

= (12 - 11.85) x 725000

= 108750 F

Labour efficiency variance = (350000 x 2 - 725000) x 12

= 300000 U

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