E9-13 Determining Actual Costs, Standard Costs, and Variances [LO 9-3, 9-4] Ambe

Question

E9-13 Determining Actual Costs, Standard Costs, and Variances [LO 9-3, 9-4] Amber Company produces iron table and chair sets. During October, Amber's costs were as follows $2.80 per lb. $ 8.00 per hour $ 2.60 per lb Actual purchase price Actual direct labor rate Standard purchase price Standard quantity for sets produced Standard direct labor hours allowed Actual quantity purchased in October Actual direct labor hours Actual quantity used in October Direct labor rate variance 1,020,000 lbs. 1,265,000 lbs. 1,050,000 lbs 21,000 15,000 $6,000 F Required: 1. Calculate the total cost of purchases for October selecting "F" for favorable, "U" for 2. Compute the direct materials price variance based on quantity purchased. (Indicate the effect of each varlance by

Explanation / Answer

Working note: Cost of actual purchases for October

Actual purchase price of material= $ 2.80/lb

Actual quantity purchased in October=12,65,000 lbs

Therefore Cost of the actual purchases=$ 35,42,000

2.Computation of Direct Material Price Variance=$ 8,40,000(U)(see working note below)

Working note: Computation of Direct Material Price Variance

Actual Purchase price= $2.80/lb

Standard Purchase price= $2.60/lb

Actual quantity of materials consumed=10,50,000 lbs

Material Price Variance=( Standard price –Actual price)* Actual Quantity used

=($2.60 -$ 2.80)* 10,50,000 lbs= $ 8,40,000(U)

3.Computation of Direct Material Quantity Variance= $ 78,000(U) (see working note below)

Working Note: Computation of Direct Material Quantity Variance

Standard quantity of materials for actual production= 10,20,000 lbs

Standard Purchase price= $2.60/lb

Actual Purchase price= $2.80/lb

Material quantity variance= (Standard Quantity –Actual Quantity)* Standard price of direct material

=(10,20,000 lbs-10,50,000 lbs)*$2.60/lb =$ 78,000(U)

4.Computation of standard direct labour rate for October=$ 8.4 /hour(see working note below)

Direct labour rate variance= 6000(F)

(Standard rate/hour-Actual rate/hour)*Actual Direct labour Hours =6000(F)

(Standard rate/hour- 8/hour)15000=6000

Standard rate/hour=0.4+8=$ 8.4/direct labour hour

5.Computation of Direct Labour Efficiency Variance= $ 50,400(F)(see working note below)

Working Note: ( Standard hours for Actual Production-Actual hours)*Standard rate/hour

=( 21000 hours-15,000 hours)* $ 8.4/hour=$ 50,400(F)

                                 

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