Question

Jackson Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Jackson has established the following standards for the manufacturing costs of one unit of product, and based on planned production of 20,000 units.

	Standard Quantity	Standard Price	Standard Cost
Direct materials	5 pounds	$ 3.60/pound	$ 18.00
Direct labor	1.25 hours	$ 12/hour	$ 15.00
Variable overhead	3 machine hours	$ 8/ machine hour	$ 24.00

During May, Jackson purchased 125,000 pounds of direct materials at a total cost of $475,000. The total factory wages for May were $364,000, 90% of which were for direct labor. Jackson manufactured 22,000 units of product during May using 108,000 pounds of direct materials and 28,000 direct labor hours. Variable overhead totaled $497,700 for 63,000 machine hours.

Jackson's direct materials price and efficiency variances are:

$ 25,000 unfavorable and $ 7,200 favorable, respectively

$ 25,000 unfavorable and $ 54,000 favorable, respectively

$ 25,000 unfavorable and $ 90,000 favorable, respectively

$ 25,000 favorable and $ 61,200 favorable, respectively

Jackson's direct labor price and efficiency variances are:

$ 6,000 favorable and $36,000 favorable, respectively

$ 8,400 favorable and $ 36,000 unfavorable, respectively

$ 6,000 favorable and $ 8,400 unfavorable, respectively

$ 8,400 favorable and $ 6,000 unfavorable, respectively

Jackson's variable overhead price and efficiency variances are:

$ 6,300 favorable and $ 24,000 unfavorable, respectively

$ 6,300 unfavorable and $ 24,000 unfavorable, respectively

$ 6,300 favorable and $ 24,000 favorable, respectively

$ 6,300 unfavorable and $ 24,000 favorable, respectively

Answer 1

Ans-1-The correct option is (a)-$25,000 unfavorable and $7,200 respectively.

Explanation:-

Material price variance= Actual quantity of material purchased *(standard price of material per unit-Actual price of material per unit)

=125,000*(3.60-475,000/125,000)

=125,000* (3.60-3.80)

=$25,000 unfavorable  

Material quantity variance = Standard price of material per unit *(Standard quantity of material used for production of actual output-Actual quantity of material used for production of actual output)

=3.60 [(5*22,000)-108,000]

=3.60* (110,000-108,000)

=$7,200 favorable

2- The correct option is (b)-$8,400 favorable and $6,000 unfavorable, respectively

Explanation:-

Labor rate variance= Actual hours worked* (Standard rate per hour worked- Actual rate per hour worked)

=28,000*(12-364,000*90%/ 28,000)

=28,000*(12-327,600/ 28,000)

=28,000*(12-11.70)

= $8,400 favorable

Labor efficiency variance = Standard rate per hour*(Standard hours worked for production of actual output-Actual hours worked)

=12*[(22,000*1.25)-28,000]

= $6,000 unfavorable

3-The correct option is $6,300 favorable and $ 24,000 unfavorable, respectively

Explanation:-

Variable overhead price  variance= Actual hours worked *(Actual overhead rate- Standard overhead rate)

=63,000*(497,700/63,000-$8)

=63,000*0.1

=6,300 favorable

Variable overhead efficiency variance= Standard overhead rate per hour*(Actual hours- Standard hours)

=$8 *[63,000-(20,000*$3)]

=$8 *3,000

=$24,000 unfavorable