Question

Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below:

	Standard Quantity or Hours		Standard Price or Rate			Standard Cost
Direct materials	6.00	pounds	$	2.30	per pound	$	13.80
Direct labor	0.50	hours	$	10.00	per hour	$	5.00

During the most recent month, the following activity was recorded:

1. 11,000.00 pounds of material were purchased at a cost of $2.10 per pound.

2. All of the material purchased was used to produce 1,500 units of Zoom.

3. 500 hours of direct labor time were recorded at a total labor cost of $6,500.

Required:

1. Compute the materials price and quantity variances for the month.

2. Compute the labor rate and efficiency variances for the month.

(For all requirements, Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Round your intermediate calculations to the nearest whole dollar.)

Answer 1

Variance is the difference between an actual amount and a budgeted, planned or past amount. Variance analysis is one step in the process of identifying and explaining the reasons for different outcomes.

Variance analysis is usually associated with a manufacturer's product costs. In this setting, variance analysis attempts to identify the causes of the differences between a manufacturer's 1) standard or planned costs of the inputs that should have occurred for the actual products manufactured, and 2) the actual costs of the inputs used for the actual products manufactured.

Answer with step by step explanation:

1. Computation of material price and quantity variance for the month:

a) Direct Material price Variance = (Actual Price - Standard price) x Actual Quantity

Actual price = $2.10 per pound
Standard price = $2.30 per pound
Actual quantity = 11,000

Direct Material price Variance = ($2.10 - $2.30) × 11,000 = $2,200 Favourable

Actual price is Less than standard price of material. Hence, it is a favorable variance.

b) Direct Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price

Actual quantity = 11,000pounds
Standard quantity = Actual units produced × Standard per unit quantity of pounds = 1,500 × 6 = 9,000
Standard price = $2.30

Direct Material Quantity Variance = (11,000 - 9,000) × $2.30 = $4,600 Unfavorable

Actual quantity of materials is more than standard quantity of material. Hence, it is an unfavorable variance.

2. Computation of labor rate and efficiency variances for the month.

a) Labor rate variance = (Standard rate - Actual rate) x Actual hours

Standard rate = $10 per hour
Actual rate = Actual labor cost / Actual labor hours = $6,500 / 500 = $13
Actual hours = 500

Labor rate variance = (10 - 13) × 500 = $1,500 Unfavourable

Actual direct labor rate is more than standard rate of direct labor. Hence, it is an unfavorable variance.

b) Labor efficiency variance = (Standard hours - Actual hours) x Standard rate

Standard hours = Units produced × standard hour per unit = 1,500 × 0.50 hours = 750
Actual hours = 500
Standard rate = $10 per hour

Labor efficiency variance = (750 - 500) × 10 = 250 × 10 = $2,500 Favourable

Actual labor efficiency is less than standard labor efficiency. Hence, it a favourable variance.