Ayala Corporation accumulates the following data relative to jobs started and fi

Question

Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2017.

Costs and Production Data

Actual

Standard

Overhead is applied on the basis of standard machine hours. 3.00 hours of machine time are required for each direct labor hour. The jobs were sold for $460,000. Selling and administrative expenses were $42,100. Assume that the amount of raw materials purchased equaled the amount used.

Compute all of the variances for (1) direct materials and (2) direct labor. (Round answers to 0 decimal places, e.g. 125.)

Costs and Production Data

Actual

Standard

Raw materials unit cost $2.30 $2.20 Raw materials units used 11,100 10,300 Direct labor payroll $170,200 $164,160 Direct labor hours worked 14,800 15,200 Manufacturing overhead incurred $202,600 Manufacturing overhead applied $205,200 Machine hours expected to be used at normal capacity 43,500 Budgeted fixed overhead for June $65,250 Variable overhead rate per machine hour $3.00 Fixed overhead rate per machine hour $1.50

Explanation / Answer

Solution:

1) Direct Material Variances:

Direct Material Price Variance = Actual Quantity Purchased (Standard Price – Actual Price) = 11,100 ($2.20 - $2.30) = $1,110 Unfavorable

Note – In case of absence of Actual Quantity purchased, the Actual Quantity used is taken for calculation of Price Variance.

Direct Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity)

= $2.20 (10,300 – 11,100)

= $1,760 Unfavorable

Total Material Variance = Direct Material Price Variance + Direct Material Quantity Variance = $1,110 U + $1,760 U = $2,870 Unfavorable

2) Direct Labor Variances

Direct Labor Price Variance = Actual Hours (Standard Rate – Actual Rate) = 14,800 ($10.80 - $11.5) = $10,360 Unfavorable

Standard Rate per hour = $164,160 / 15,200 = $10.80

Actual Rate per hour = $170,200 / 14,800 = $11.50

Direct Labor Quantity/Efficiency Variance = Standard Rate (Standard Hours – Actual Hour)

= $10.80 (15,200 – 14,800) = $4,320 Favorable

Total Labor Variance = Direct Labor Price Variance + Direct Labor Quantity Variance = $10,360 U + $4,320 F = $6,040 Unfavorable

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