Pharout Company uses a standard cost system. Job 822 isfor the namufacturing of

Question

Pharout Company uses a standard cost system. Job 822 isfor the namufacturing of 500 units of the product P521. Thecompany's standards for one unit of product P521 are asfollows: Quantity                                   Price Directmaterial         5ounces     $2 per ounce Directlabor            2 hours        $10 perhour The job required 2,800 ounces of raw material costing5,880. An unfavorable labor rate variance of $250 and afavorable labor efficiency variance of $100 also were determinedfor this job. a. Determine the direct material price variance for job822 based on the actual quantity of materials used. b. Determine the direct material quantity variance forjob 822 based on the actual quantity of materials used. c. Determne the actual quantity of direct lavor hoursused on job 822 based on the actual quantity of materialsused. d. Determine the actual labor costs incurred for job822. Pharout Company uses a standard cost system. Job 822 isfor the namufacturing of 500 units of the product P521. Thecompany's standards for one unit of product P521 are asfollows: Quantity                                   Price Directmaterial         5ounces     $2 per ounce Directlabor            2 hours        $10 perhour The job required 2,800 ounces of raw material costing5,880. An unfavorable labor rate variance of $250 and afavorable labor efficiency variance of $100 also were determinedfor this job. a. Determine the direct material price variance for job822 based on the actual quantity of materials used. b. Determine the direct material quantity variance forjob 822 based on the actual quantity of materials used. c. Determne the actual quantity of direct lavor hoursused on job 822 based on the actual quantity of materialsused. d. Determine the actual labor costs incurred for job822.

Explanation / Answer

a. Determine the direct material price variance for job822 based on the actual quantity of materials used.    ===================================================================== Direct material pricevariance          =       (AR – SR) x AQ Actual Rate (AR)        =     $5,880/ 2,800ounces      =   $2.10 Standard Rate(SR)      =      $2.00 Actual Rate (AR)        =     $5,880/ 2,800ounces      =   $2.10 Standard Rate(SR)      =      $2.00 Actual Quantity(AQ)   =      2,800
                  
Direct material pricevariance          =       (AR – SR) x AQ
=       ($2.10 – 2.00] x2,800 =       $280 Unfavorable ______________________________________________________________________________________ b. Determine the direct material quantity variance forjob 822 based on the actual quantity of materials used.      ====================================================================== Direct material quantityvariance           =      (AQ– SQ) x SR ______________________________________________________________________________________ b. Determine the direct material quantity variance forjob 822 based on the actual quantity of materials used. b. Determine the direct material quantity variance forjob 822 based on the actual quantity of materials used.      ====================================================================== Direct material quantityvariance           =      (AQ– SQ) x SR Actual Quantity(AQ)         =      2,800
StandardQuantity(AQ)      =     500units x 5 ounces   =   2,500ounces Actual Quantity(AQ)         =      2,800
StandardQuantity(AQ)      =     500units x 5 ounces   =   2,500ounces Standard Rate(SR)            =      $2.00 Direct material quantityvariance           =      (AQ– SQ) x SR Direct material quantityvariance           =      (AQ– SQ) x SR Direct material quantityvariance           =      (2,800- 2,500 ) x $2.00                                                            =      $600Unfavorable ____________________________________________________________________________________________ c. Determne the actual quantity of direct labor hoursused on job 822 based on the actual quantity of materialsused.      ============================================================================ Direct labor hours used ================ Labor efficiencyvariance         =      (AH   -   SH)   xSR Actual Hours(AH)                  =   ?    Standard Hours(AH)              =    2hours x 500 units  = 1,000 hours Standard Rate(SR)                 =    $10.00 Labor efficiencyvariance         =      (AH   -   SH)   xSR Labor efficiencyvariance         =      (AH   -   SH)   xSR                -100                        =      (AH- 1,000 hiours) x $10.00 AH = (1,000 x $10) -100      =   990hours                 Direct labor hoursused          =   990hours ___________________________________________________________________________________________ d. Determine the actual labor costs incurred for job822. d. Determine the actual labor costs incurred for job822.     ==================================== We need to know the Actual labor rate (AR) for determiningactual labor cost. This can be obtained from given rate variance$250U as follows : Labor RateVariance            =      (AR - SR) x AH AR                                      =         ? SR                                       =         $10per hour AH                                      =         990hours (refer C above) AR                                      =         ? SR                                       =         $10per hour AH                                      =         990hours (refer C above) Labor RateVariance    =      (AR-10) x 990 = $250 (AR - 10)   =   $250 / $990   =   0.2525 AR            =   $10.00 +0.2525      =   $10.2525 Actual labor costs incurred for job822      =      $10.2525 x 990hours      =      $10,150

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