Exercise 10-6 Direct Materials and Direct Labor Variances [LO10-1, LO10- 2] Huro
ID: 2564257 • Letter: E
Question
Exercise 10-6 Direct Materials and Direct Labor Variances [LO10-1, LO10- 2] Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below: Standard Price or Rate Standard Cost $11.50 3.60 Standard Quantity or Hours Direct materials Direct labor 4.6 pounds 250 per pound $18.00 per hour 0.2 hours During the most recent month, the following activity was recorded: a. Twenty thousand pounds of material were purchased at a cost of $2.35 per pound. b. All of the material purchased was used to produce 4,000 units of Zoom. c. 750 hours of direct labor time were recorded at a total labor cost of $14,925. Required 1. Compute the materials price and quantity variances for the month. 2. Compute the labor rate and efficiency variances for the month. (For all requirements, Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) 1. Materials price variance Materials quantity variance 2. Labor rate variance Labor efficiency varianceExplanation / Answer
Material Price Variance = (Actual Quantity x Actual Price) - (Actual Quantity x Standard Price)
= (20,000 x $2.35) - (20,000 x $2.50)
= $47,000 - $50,000
= ($3000) i.e $3,000 (Favourable)
Standard usage = Actual quantity of final product produced x Standard Quantity
= 4000 x 4.6 = 18400 pounds of material
Materials Quantity Variance = (Actual usage in units - Standard usage in units) x Standard cost per unit
= (20000 – 18400) x $2.50
= $4000 i.e $4,000 (Adverse)
Actual rate = Total labor cost / Actual hours
= 14925 / 750 = $19.90
Labor rate variance = (Actual rate - Standard rate) x Actual hours worked
= ($19.90 – 18.00) x 750
= $1425 i.e $1,425 (Adverse)
Standard hours = Actual quantity of final product produced x Standard Hours
= 4000 x 0.2 = 800 hours
Labor efficiency variance = (Actual hours - Standard hours) x Standard rate
= (750 – 800) x 18.00
= ($900) i.e $900 (Favourable)
The following is the summary:
Material Price Variance $3,000 F Materials Quantity Variance $4,000 U Labor Rate Variance $1,425 U Labor Efficiency Variance $900 FRelated Questions
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