Amber Company produces iron table and chair sets. During October, Amber’s costs

Question

Amber Company produces iron table and chair sets. During October, Amber’s costs were as follows:

Required:
a. Calculate the total cost of purchases for October.



b. Compute the direct materials price variance based on quantity purchased. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)



c. Calculate the direct materials quantity variance based on quantity used. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)



d. Compute the standard direct labor rate for October. (Round your answer to 2 decimal places.)



e. Compute the direct labor efficiency variance for October. (Round your intermediate calculation to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Actual purchase price $ 1.80 per lb. Actual direct labor rate $ 7.00 per hour Standard purchase price $ 1.60 per lb. Standard quantity for sets produced 920,000 lbs. Standard direct labor hours allowed 15,000 Actual quantity purchased in October 1,065,000 lbs. Actual direct labor hours 7,000 Actual quantity used in October 950,000 lbs. Direct labor rate variance $5,000 F

Explanation / Answer

a)

Total Cost of Purchase

(A)

Actual Price per lb.

$                   1.80

(B)

Quantitry Purchased

1065000

(A*B)

Total Cost of Purchase

$ 1,917,000.00

b)

Material Price Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Quantity

(

$                          1.60

-

$       1.80

)

x

1065000

-213000

Variance

213000

Unfavourable-U

c)

Material Quantity Variance

(

Standard Quantity

-

Actual Quantity

)

x

Standard Rate

(

920000

-

950000

)

x

$       1.60

-48000

Variance

48000

Unfavourable-U

d)

Actual labour hour

7000

Actual rate per Labor hour

                           $7.00

Actual Cost for labor

49000

Labor Rate variance

5000 F

This means Standard cost at standard rate would be (49000+5000) $54000

Standard rate

(cost at standard rate/actual labor hours)

Standard rate

(54000/7000)

Standard rate per labor hour

    $ 7.71

e)

Labour Efficiency Variance

(

Standard Hours

-

Actual Hours

)

x

Standard Rate

(

15000

-

7000

)

x

$       7.71

61680

Variance

61680

Favourable-F

a)

Total Cost of Purchase

(A)

Actual Price per lb.

$                   1.80

(B)

Quantitry Purchased

1065000

(A*B)

Total Cost of Purchase

$ 1,917,000.00

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