E9-1 Calculating Unknown Values for Direct Materials, Direct Labor Variances [LO
ID: 2581660 • Letter: E
Question
E9-1 Calculating Unknown Values for Direct Materials, Direct Labor Variances [LO 9-3, 9-4] Ironwood Company manufactures cast-iron barbeque cookware. During a recent windstorm, it lost some of its cost accounting records. Ironwood has managed to reconstruct portions of its standard price (rate) system database but is still missing a few pieces of information. Required Use the information in the table to determine the unknown amounts. You may assume that Ironwood does not keep any raw materials on hand. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.) Direct Materials Direct Labor 2.5 lb 4.20 per lb. 16.00 per hr 2.4 lb. 1.10 hr Standard amount per pan produced Standard price (rate) Actual amount used per pan produced Actual price (rate) Actual number of pans produced and sold Direct materials price variance Direct materials quantity variance Direct materials spending variance Direct labor rate variance Direct labor efficiency variance Direct labor spending variance 1.20 hr S4.10 perlb.15.50 per hr 2,500 pans 2,500 pansExplanation / Answer
Standard amount of Direct material per pan produced = 2.5 lb.
Standard price = $ 4.2 per lb.
Actual amount of Direct material per pan produced = 2.4 lb.
Actual price = $ 4.1 per lb.
Actual number of pans produced and sold = 2500 pans
1. Direct material price variance = ( standard price per lb. - actual price per lb.) * actual quantity purchase
= ( 4.2 - 4.1 ) * ( 2500* 2.4)
= 0.1 * 6000
= $600 (F)
2. Direct material quantity variance = ( standard quantity of actual output - actual quantity for actual output) * standard price
= (2.5 * 2500 - 2.4 * 2500) * 4.2
= 1050 lb. (F)
3. Direct material spending variance = Standard cost for actual output - actual cost
= 2500 * 2.5 * 4.2 - 2500 * 2.4 * 4.1
= 26250 - 24600
= $1650 (F)
Standard amount per pan produced = 1.1 hr.
Standard price per hour = $ 16.00
Actual amount per pan produced = 1.2 hr.
Actual price per hour = $ 15.50
Actual number of pan produced = 2500
1. Direct labor rate variance =( standard price - actual price ) * actual hours paid
= ( 16 - 15.5) * (2500* 1.2)
= $1500 (F)
2. Direct labor efficiency variance = ( Standard hour for actual output - actual hours worked ) * standard price
= ( 2500*1.1 - 2500*1.2) * 16
= 4000 hr. (U)
3. Direct labor spending variance = Standard labor cost - actual labor cost
= ( 2500 * 1.1 * 16) - ( 2500*1.2*15.5)
=44000 - 46500
= $2500 (U)
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