Grand River Manufacturing produces a metal flange that it sells to several local
ID: 2567890 • Letter: G
Question
Grand River Manufacturing produces a metal flange that it sells to several local home building supply retailers. The company has set standards as follows for materials and labour:
10 Grand River Manufacturing produces a metal flange that it sells to several local home building supply retailers. The company has set standards as follows for materials and labour: Direct MaterialsDirect Labour Standard quantity or hours per unit 15 kilograms Standard price or rate Standard cost per unit ? hours $? per hour S? $3 per kilogram $4.50 During the past month, the company purchased 1,600 kilograms of direct materials at a cost of $4,640. All of this material was used in the production of 940 units of product using 475 hours of direct labour. Direct labour cost totalled $5,225 for the month. The following variances have been computed Labour rate variance Total labour variance Materials quantity variance $475 U $425 F $570 U Required 1. Compute the following for direct labour. (Round "hours per unit" answer to 2 decimal places.) a. Standard rate per hour for labour. b. Standard quantity allowed for labour for the month's production c. Standard quantity of labour allowed per unit of product rS hrs per unit 2. Compute the following for direct materials. (Round your answers to 2 decimal places.) a. Actual direct materials cost per kilogram for the month b. Materials price varianceExplanation / Answer
Solution:
1-a) Standard Rate per hour for labor
Labor Rate Variance = (AH*SHR) – (AH*AHR)
475U = (475*SHR) – $5,225
475*SHR = - 475 + 5225
475*SHR = 4,750
SHR = 4750 / 475 = $10 per hour
Standard Rate per hour = $10 per hour
1-b) Standard quantity allowed for labor for the month’s production
Total Labor Variance = Labor Rate Variance + Labor Efficiency Variance
425F = 475U + Labor Efficiency Variance
Labor Efficiency Variance = 425 + 475 = 900F
Formula for labor efficiency variance
Labor Efficiency Variance = Standard Rate (Std quantity allowed for labor for the month’s production – Actual Hour Used)
900 = 10(Std quantity allowed for labor for the month’s production – 475)
90 = Std quantity allowed for labor for the month’s production – 475
Std quantity allowed for labor for the month’s production = 90 + 475 = 565 Hours
1-c)
Standard quantity of labour allowed per unit of product = Total Std quantity allowed for labor for the month’s production / Actual Units Produced in the month
= 565 Hours / 940 Units
= 0.60 Hours per unit
2-a)
Actual Direct materials cost per kilogram for the month = Total Cost of Direct materials actually purchased / Actual Quantity of direct material purchased
= $4,640 / 1,600 Kilograms
= $2.90 per kilogram
2-b)
Materials Price Variance = Actual Quantity (Standard Price – Actual Price)
= 1,600 (3 – 2.90)
= $160 F
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