Direct materials and manufacturing labor variances, solving unknowns. (CPA, adap

Question

Direct materials and manufacturing labor variances, solving unknowns. (CPA, adapted) On May 1,

2014, Lowell Company began the manufacture of a new paging machine known as Dandy. The company

installed a standard costing system to account for manufacturing costs. The standard costs for a unit of

Dandy follow:

The following data were obtained from Lowell’s records for the month of May:

$150,000

36,300

$4,500

2,900

1,700

2,000

Actual production in May was 4,700 units of Dandy, and actual sales in May were 3,000 units.

The amount shown for direct materials price variance applies to materials purchased during May.

There was no beginning inventory of materials on May 1, 2014.

Compute each of the following items for Lowell for the month of May. Show your computations.

1. Standard direct manufacturing labor-hours allowed for actual output produced

2. Actual direct manufacturing labor-hours worked

3. Actual direct manufacturing labor wage rate

4. Standard quantity of direct materials allowed (in pounds)

5. Actual quantity of direct materials used (in pounds)

6. Actual quantity of direct materials purchased (in pounds)

7. Actual direct materials price per pound

Direct materials (2 lb. at $3 per lb.) $6.00 Direct manufactuirng labor (1/2 hour at $16 per hour) 8.00 Manufacturing overhead (80% of direct manufacturing labor costs) 6.4 $20.40

Explanation / Answer

1)Standard hours allowed = 4700 *1/2 = 2350 Hours

2) Actual Direct manufacturing Labor hours worked :

Labor efficiency variance =SR [AH-SH]

      - 2000 = 16 [AH- 2350 ]

     -2000/16 = AH -2350

      -125 + 2350 =AH

       AH = 2225 Hours

3)Actual labor rate :Rate variance = =AH [AR- SR]

                              1700 = 2225 [AR -16]

                              1700 /2225 = AR-16

                               .76 +16 =AR

AR = 16.76 per Hour

4) Standard quanity = 4700 *2 =9400 IB

5)Actual quantity : Material efficiency variance =SR [AQ-SQ]

                     2900 = 3 [AQ- 9400]

                     2900/3 =AQ-9400

                     966.67 =AQ -9400

AQ used = 9400+966.67 = 10366.67 [Approx 10367 pounds)

6) Price variance = ACtual cost - (AQ*SR)

    4500 = 36300 - (AQ * 3)

    4500 = 36300 -3AQ

     3AQ = 36300 -4500

        AQ = 31800/3

               = 10600 pounds purchased

7 )Price =36300 /10600 = $ 3.42 per pound .

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