Ironwood Company manufactures cast-iron barbeque cookware. During a recent winds

Question

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 Material Direct Labor Standard amount per pan produced 2.5 pounds 1.10/hour Standard Price(rate) $4.20 per pound $16 per hour Actual amount used per pan produced 2.4 pounds 1.20/hour Actual Price(rate) 4.10 per pound 15.50 per hour Actual number of pans produced and sold 2,500 pans 2,500 pans Direct Materials price variance x Direct Materials quantity variance x Direct Materials spending variance x Direct labor rate variance    x Direct Labor quantity variance    x Direct Labor spending variance    x

Explanation / Answer

FOR DIRECT MATERIAL VARIENCE

Given Standerd Quantity = 6,250 ( 2.5*2500 )

Standerd Price= 4.2

Actual Quantity = 6000 (2.4*2500)

Actual Price = 4.1

Direct Material Price Varience = Standerd Quantity * Standerd Price - Actual Quantity * Actual Price

6250*4.2-6000*4.1=26250-24600=1650 F

Direct Materials Spending Variance = (Standerd Price - actual price)*standerd quantity

=(4.2 - 4.1)* 6250 = 625 F

Direct Material Quantity Varience = (Standerd Quantity - Actual Quantity ) * Standerd price

=(6250-6000) * 4.1 = 1025 F

Direct material Cost Varience = Direct material Spending Varience + Direct Material Quantity Varience

=625+1025

=1650

DIRECT LABOUR RATE VARIENCE

GIVEN

STANDERD HOURS = TOTAL PRODUCTION / PRODUCTION PER HOUR = 2500/1.1= 2272.727

STANDERD RATE = 16

ACTUAL HOURS = 2500/1.2 = 2083.333

ACTUAL RATE = 15.5

Direct Labour rate Varience = ( Standerd Hours * Standerd rate ) - ( Actual hours * Actual rate )

= (2272.73*16) - (2083.33*15.5) = 4071.97 F

Direct Labour Spending Varience = ( Standerd rate - Actual rate ) * Actual hours = (16-15.5) * 2083.33 = 1041.67 F

Direct Labour Quantity Varience = ( Standerd Hours - Actual Hours ) * Standerd rate = (2272.73-2083.33) * 16 = 3030.30 F

Direct Labour Rate Varience = Direct Labour Quantity Varience + Direct Labour Spending Varience = 1041.67+3030.30 = 4071.97

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