Eg-13 Determining Actual Costs, Standard Costs, and Variances [LO 9-3,9-4 Amber

Question

Eg-13 Determining Actual Costs, Standard Costs, and Variances [LO 9-3,9-4 Amber Company produces iron table and chair sets. During October, Amber's costs were as follows: $1.40 per lb $6.60 per hour $1.20 per lb Actual purchase price Actual direct labor rate Standard purchase price Standard quantity for sets produced Standard direct labor hours allowed Actual quantity purchased in October Actual direct labor hours Actual quantity used in October Direct labor rate variance 880,000 lbs. 15,000 1,025,000 lbs. 8,000 910,000 lbs. $4,600 F Required 1. Calculate the total cost of purchases for October 2. Compute the direct materials price variance based on quantity purchased. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.) t Materials Price Variance 3. Calculate the direct materials quantity variance based on quantity used. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.) Material Quantity Variance

Explanation / Answer

a) Total purchase = 1025000*1.4 = 1435000

b) Material price variance = (1.20-1.40)*1025000 = 205000 U

c) Material quantity variance = (880000-910000)*1.2 = 36000 U

d) Labour rate variance = (Standard rate-actual rate)actual hours

6600 = (X*8000-6.6*8000)

6600 = 8000X -52800

-8000X = -59400

X(standard rate per hour) = 59400/8000 = 7.43 per hour

5) Direct labour efficiency variance = (15000-8000)*7.43 = 52010 F

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