Question 5 (5 Marks) Oskar Monarch Company produces toys. The company provided t

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Question 5 (5 Marks) Oskar Monarch Company produces toys. The company provided the following raw materials and direct labor information: (2.5 marks) 1. Direct Materials The company uses 2 units of raw materials to produce 1 unit of product The standard st per unit of raw material was established at $12 per unit The standard quantity is established at 22,500 products (or 45,000 units of raw materials) During the month of Apil the company buys 50,000 units of raw materials (to produce 25,000 products) for $14 per unit and uses those raw materials to produce 25,000 units of product Required Compute the Materials Price and Quantity variances. Disclose if the variances are favorable or unfavorable. Answer 2. Direct Labor The company in order to produce the product incurs 4500 direct labor hours at an average hourty rate of $16 The standard hours allowed for the units produced were 3,800 hours. The standard labor rate was $14 per our (2.5 Marks) Reguired Compule the Direct Labor rate variance and Direct Labor efficiency variance. Disclose if the variances are favorable or unfavorable Answer

Explanation / Answer

1 Direct Material price variance=AQ*(SP-AP) Actual quantity consumed=AQ=50000 units Standard price per unit=SP=$12 per unit Actual price=AP=$14 per unit Direct Material price variance=50000*(12-14)=100000 (Unfavorable) Since Actual price of raw material is more tham standard price, Material price variance is unfavorable. Direct material Quantity variance=SP*(SQ-AQ) Standard price per unit=SP=$12 per unit Standard quantity=SQ=Actual units produced*Standard material requiresd per unit=25000*2=50000 units Actual quantity consumed=AQ=50000 units Direct material Quantity variance=12*(50000-50000)=0 No need to determine favorable or unfavorable since variance is 0. 2 Direct labor rate variance=AH*(SR-AR) Actual hous worked=AH=4500 hours Standard rate per hour=SR=$14 per hour Actual rate per hour=AR=$16 per hour Direct labor rate variance=4500*(14-16)=9000 (Unfavorable) Since Actual rate of labour is more tham standard rate, labor rate variance is unfavorable. Direct labor efficiency variance=SR*(SH-AH) Standard rate per hour=SR=$14 per hour Standard hours=SH=3800 hours Actual hous worked=AH=4500 hours Direct labor efficiency variance=14*(3800-4500)=$9800 (Unfavorable) Since Actual hours is more than standard hours,Labor efficiency variance is unfavorable

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