The following information describes production activities of Mercer Manufacturin

Question

The following information describes production activities of Mercer Manufacturing for the year. Actual direct materials used 35,000 lbs. at $6.00 per lb. Actual direct labor used 11,050 hours for a total of $230,945 Actual units produced 66,000 Budgeted standards for each unit produced are 0.50 pounds of direct material at $5.95 per pound and 10 minutes of direct labor at $21.90 per hour. AQ = Actual Quantity SQ = Standard Quantity AP = Actual Price SP = Standard Price AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate (1) Compute the direct materials price and quantity variances. (2) Compute the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Explanation / Answer

Direct materials price variance = AQ*(AP-SP) = 35000*(6-5.95)= 1750 Unfavorable Direct materials quantity variance = SP*(AQ-SQ) = 5.95*(35000-66000*0.5)= 11900 Unfavorable Direct labor rate variance = AH*(AR-SR) = 11050*(20.9-21.9)= 11050 Favorable Direct labor efficiency variance = SR*(AH-SH) = 21.9*(11050-66000*10/60)= 1095 Unfavorable

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