Diamond Company produces a single product. The company has set the following sta
ID: 2467318 • Letter: D
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 11.600 pounds of direct materials at a cost of $77,720. All of this material was used in the production of 2.200 units of product. Direct labor cost totaled $90,100 for the month. The following variances have been computed: 1. For direct materials: a. Compute the standard price per pound of materials. b. Compute the standard quantity allowed for materials for the month's production. c. Compute the standard quantity of materials allowed per unit of product. 2. For direct labor: a. Compute the actual direct labor hours for the month.Explanation / Answer
1) a) Direct material price variance = ( Actual price - standard price) * actual quantity Material price variance = Total materials variance - material quantity variance = 720 U - 4200 U = 3480 F 3480 = ( 77720 / 11600 - Standard price) * 11600 =-3480 = ( 6.7 - standard price) * 11600 standard price = 6.7 + 3480/11600 = 6.7 + 0.3 = 7.0 b) Material quantity variance = ( Standard quantity - actual quantity) * standard price 4200 = ( standard quantity - 11600 ) * 7 standard quantity = -4200/7 + 11600 = -600 + 11600 = 11000 c) Standard quantity of material per unit = 11000 / 2200 = 5 2) a) Labor efficiency variance = ( Actual hours - standard hours) * standard rate -3000 = ( actual hours - 2200*4) * 10 -3000 = ( actual hours - 8800) * 10 actual hours = -3000/10 + 8800 = 8800 - 300 = 8500 hours b) Labor rate variance = ( Actual rate - standard rate ) * Actual hours = ( 90100/8500 - 10) * 8500 = ( 10.6 - 10) * 8500 = 0.6 * 8500 = 5100 U
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