Alpha Company produces toys for national distribution. The standard cost card fo

ID: 2485563 • Letter: A

Question

Alpha Company produces toys for national distribution. The standard cost card for one of its products shows the following: During the month of December, Alpha produced 2,000 units of the product. Actual purchasing and production figures for the month were: Direct Materials Purchased: 28,000 at a total cost of $14,560 Direct Materials Used in Production: 27,000 Direct Labor Incurred: 3,900 hrs. at a total cost of $22,425 Compute the following standard cost variances and clearly indicate whether the variance is Favorable (F) or Unfavorable (U). You must show your calculations to receive credit.

Explanation / Answer

Material price variance = ( AR – SR ) AQ purchased

= (.52 - .56 ) 28,000

=1,120(F)

Material quantity(usage variance) = (AQ used – SQ) SR

= (27,000 – 2000*12) .56

=1,680(U)

Labor rate variance = (AR – SR ) AH

=(5.75 – 5.50) 3,900

=975(U)

Labor Efficiency variance= (AH – SH ) SR

=(3,900 – 2000*2) 5.50

=550(F)