Diamond Company produces a single product. The company has set the following sta

Question

Diamond Company produces a single product. The company has set the following standards for materials and labor: During the past month, the company purchased 14,300 pounds of direct materials at a cost of $28,600. All of this material was used in the production of 1,500 units of product. Direct labor cost totaled $43,120 for the month. The following variances have been computed: For direct materials: Compute the standard price per pound of materials. Compute the standard quantity allowed for materials for the month's production. Standard quantity pounds c. Compute the standard quantity of materials allowed per unit of product. Standard quantity pounds per unit 2, For direct labor: Compute the actual direct labor hours for the month. Compute the labor rate variance. (Input the amount as a positive value. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your intermediate calculations to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

1) Direct Materials:

a)

To calculate the standard price per pound of materials we need to calculate the material price variance. Material price variance can be calculated with the use of formula for total material variance as given below

Total Material Variance (F) = Material Price Variance + Material Quantity Variance

Using the information provided in the question, we get,

3,800 = Material Price Variance - 1,920

Material Price Variance = 3,800 + 1.920 = $5,720 (F)

________

Using the formula for Material Price Variance, we can calculated the Standard Price Per Pound.

Material Price Variance = Actual Material*(Standard Rate - Actual Rate)

5,720 = 14,300*(Standard Rate - 28,600/14,300)

Standard Rate = (28,600 + 5,720)/14,300 = $2.40 per pound (answer)

________

b)

Standard quantity allowed for materials for month's production can be calculated with the use of formula for material quantity variance as below:

Material Quantity Variance = Standard Rate*(Actual Material - Standard Quantity Allowed for Materials for Months Production)

Substituting information, we get,

1,920 = 2.40*(14,300 - Standard Quantity Allowed for Materials for Months Production)

Standard Quantity Allowed for Materials for Months Production = (34,320 - 1,920)/2.40 = 13,500 pounds (answer)

________

c)

The standard quantity of materials allowed per unit can be calculated with the use of following formula:

Standard Quantity of Materials Allowed Per Unit (U) = Standard Quantity Allowed for Materials for Months Production/Total Units Produced

Using the value calculated in Part b), we get,

Standard Quantity of Materials Allowed Per Unit = 13,500/1,500 = 9 pounds per unit (answer)

________

2) Direct Labor:

a) The actual labor hours can be calculated with the use of labor efficiency formula which is given below:

Labor Efficiency Variance (F) = Standard Rate*(Standard Hours Allowed for Actual Production - Actual Hours)

Substituting information, we get,

3,000 = 15*(2*1,500 - Actual Hours)

Actual Hours = (45,000 - 3,000)/15 = 2,800 hours (answer)

________

b)

The labor rate variance can be calculated with the use of followung formula:

Labor Rate Variance = Actual Hours*(Actual Rate - Standard Rate)

Substituting information, we get,

Labor Rate Variance = 2,800*(43,120/2,800 - 15) = $1,120 (U) (answer)

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