Shannon Inc., which produces a single product, has prepared the following standa

Question

Shannon Inc., which produces a single product, has prepared the   following standard cost sheet for one unit of the product. Direct materials         ( 8 pounds at $2.50 per pound) $20.00 Direct labor               ( 3 hours at $12.00 per hour) $36.00 During the month of   April, the company manufactures 230 units and incurs the   following actual costs. Direct materials purchased and used                      ( 1,900 pounds) $4,940.00 Direct labor             ( 700 hours) $8,120.00    Instructions: (For "Item", insert   "SP" for Standard Price, "SQ" for Standard Quantity,   "AP" for Actual Price, "AQ" for Actual Quantity,   "AH" for Actual Hours, "AR" for Actual Rate,   "SH" for Standard Hours, and "SR" for Standard Rate.) (1) Compute the   total materials variance. ( Item Shannon Inc., which produces a single product, has prepared the   following standard cost sheet for one unit of the product. Direct materials         ( 8 pounds at $2.50 per pound) $20.00 Direct labor               ( 3 hours at $12.00 per hour) $36.00 During the month of   April, the company manufactures 230 units and incurs the   following actual costs. Direct materials purchased and used                      ( 1,900 pounds) $4,940.00 Direct labor             ( 700 hours) $8,120.00    Instructions: (For "Item", insert   "SP" for Standard Price, "SQ" for Standard Quantity,   "AP" for Actual Price, "AQ" for Actual Quantity,   "AH" for Actual Hours, "AR" for Actual Rate,   "SH" for Standard Hours, and "SR" for Standard Rate.) (1) Compute the   total materials variance. ( Item

Explanation / Answer

Hi,

Please find the answer as follows:

Total Material Cost Variance = Actual Material Cost - Standard Material Cost = 4940 - 230*20 = 340 (U)

Direct Material Price Variance = Actual Quantity *(Actual Rate - Standard Rate) = 1900*(4940/1900 - 2.50) = 190 (U)

Direct Material Quantity Variance = Standard Rate*(Actual Quantity - Standard Quantity) = 2.50*(1900 - 230*8) = 150 (U)

Total Labor Cost Variance = Actual Labor Cost - Standard Labor Cost = 8120 - 230*36 = 160 (F)

Labor Price Variance = Actual Hours *(Actual Rate - Standard Rate) = 700*(8120/700 - 12) = 280 (F)

Labor Quantity Variance = Standard Rate*(Actual Hours - Standard Hours) = 12*(700 - 230*3) = 120 (U)

Notes:

F indicates favorable variance.

U indicates unfavorable variance

Thanks.

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