Question

The following data relates to Merrick Ltd., a single product company who manufactures vaccines:

Variances for October:

DIRECT MATERIAL QUANTITY VARIANCE 2400 UNFAVORABLE

MATERIALS VARIANCE (TOTAL) 600 FAVORABLE

DIRECT LABOR EFFICIENCY VARIANCE 9000 FAVORABLE

Actual materials and labor costs for October:

Direct materials purchased: 6,000 pounds @ $5.50 per pound	$33,000
Direct labor cost: ? hours @ ? per hour	$57,000

Materials and labor standards to manufacture one unit of vaccine:

	Quantity/hours	Price/rate	Standard cost
Direct materials	? pounds	? per pounds	? pounds
Direct labor	2.5 hours	$18 per hour	$45

Merrick Ltd. manufactured and sold 1,400 units of vaccines during October. There were no materials and finished goods inventories at the start and end of the October.

Required:

1. Compute standard price per pound of materials.
2. Compute standard quantity of materials allowed for actual production.
3. Compute standard quantity of direct materials allowed for one unit of product.
4. Compute actual direct labor cost per hour for October.
5. Compute direct labor rate variance and indicate whether it is favorable or unfavorable.

Answer 1

Compute standard price per pound of materials.

Direct Material Price Variance = Total Material Variance – Direct Material Quantity Variance

Direct Material Price Variance = $600 – (-$2400) = $3000 F

Direct Material Price Variance = (AP – SP) * AQ

             = (SP – $5.50) * 6000 = $3000

SP = $6 per pound

Compute standard quantity of materials allowed for actual production.

Direct Material Quantity Variance = (SQ – AQ) * SP

-$2400 = (SQ – 6000) * $6

SQ allowed for actual production = 5600 pound

Compute standard quantity of direct materials allowed for one unit of product.

SQ allowed for actual production/Actual production

5600 pound/1400 units = 4 pound

Compute actual direct labor cost per hour for October.

Direct Labor efficiency variance = (S Hrs – A Hrs) * SR

S Hrs = 1400 units * 2.5 hours = 3500 hours

$9000 = (3500 – A Hrs) * $18

A Hrs = 3000 hours

Actual Direct labor cost per hour = Actual Direct labor cost/A Hrs

      = $57000/3000 hours = $19 per hour

Compute direct labor rate variance and indicate whether it is favorable or unfavorable.

Direct Labor rate variance = (SR – AR) * A Hrs

($18 - $19) * 3000 = $3000 Unfavorable