Huron Company produces a commercial cleaning compound known as Zoom. The direct

Question

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 Quantity or Hours or Rate Cost Direct materials Direct labor 720 pounds $ 2.90 per pound 0.50 hours 10.00 per hour $ 5.00 During the most recent month, the following activity was recorded: a. 16,900 pounds of material were purchased at a cost of $2.60 per pound. b. All of the material purchased was used to produce 2,000 units of Zoom c. 800 hours of direct labor time were recorded at a total labor cost of $8,800 Required 1. Compute the materials price and quantity variances for the month. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) Direct materials price variance Direct materials quantity variance

Explanation / Answer

1. Direct Material Price Variance = (Actual price –standard price) * Actual quantity

= (2.6-2.9)*16900

= (-0.3)*16900

= -5070 favorable

Since Actual price is less than that of standard price, hence the variance is favorable

Direct Material Quantity Variance = Standard price *(Standard quantity – Actual quantity)

= $2.9*((2000*7.2)-16900)

= $2.9 (-2500)

= $ -7250 Unfavorable

Since actual consumption is more than that of the standard consumption, hence unfavorable

2. Direct Labor Rate Variance = Actual hours * (Actual rate – Standard Rate)

=800*(8800/800-10)

=800*1

= 800 (Unfavorable)

Since the Actual rate is more than that of the standard rate, hence unfavorable

Direct Labor Efficiency Variance = (Actual Hours - Standard Hours) * Standard Rate

= (800 - (2000*.50)) * 10

= (800-1000)*10

= (-200)*10

= - 2000 (Favorable)

Since the actual hours are less than that of the standard hours allowed, hence favorable

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