Question

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials—X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis):

	Raw Material			Standard Labor Time
Product	X442	Y661		Sintering	Finishing
Alpha6	2.5 kilos	2.5 liters		0.40 hours	1.20 hours
Zeta7	4.5 kilos	5.5 liters		0.40 hours	0.80 hours

Information relating to materials purchased and materials used in production during May follows:

Material	Purchases		Purchase Cost	Standard Price		Used in Production
X442	15,400	kilos	$46,200	$2.80	per kilo	9,900	kilos
Y661	16,400	liters	$27,880	$1.80	per liter	14,400	liters

The following additional information is available:

The company recognizes price variances when materials are purchased.

The standard labor rate is $21.00 per hour in Sintering and $20.00 per hour in Finishing.

During May, 1,350 direct labor-hours were worked in Sintering at a total labor cost of $33,210, and 2,990 direct labor-hours were worked in Finishing at a total labor cost of $65,780.

Production during May was 2,000 Alpha6s and 1,200 Zeta7s.

Compute the labor rate and efficiency variances for each operation.​

Direct Labor Variances—Sintering: Labor rate variance Labor efficiency variance Direct Labor Variances—Finishing: Labor rate variance Labor efficiency variance

Answer 1

Solution:

Direct Labor Variances - Sintering:

Standard Rate of labor = $21

Actual Rate of Labor = Actual Labor Cost of Sintering / Actual Labor Hours = $33210/1350 = $24.6

Actual Labor Hours in Sintering = 1350

Standard Hours in Sintering = 2000*0.40 + 1200*0.40 = 1280 hours

Labor Rate Variance (Sintering) = (SR-AR)*Actula Labor Hours = ($21-$24.6)*1350

= - $4,860 (Un favourable)

Labor Efficiency Variance (Sintering) = (SH - AH)*SR = (1280 -1350)*$21 = - $1,470 (Unfavourable)

Direct Labor Variances - Finishing:

Standard Rate of labor = $20 per hour

Actual Rate of Labor = Actual Labor Cost of Finishing / Actual Labor Hours = $65780/2990 = $22

Actual Labor Hours in Finishing = 2990 hours

Standard Hours in Finishing = 2000*1.20 + 1200*0.80 = 3360 hours

Labor Rate Variance (Finishing) = (SR-AR)*Actula Labor Hours = ($20-$22)*2990

= - $5,980 (Unfavourable)

Labor Efficiency Variance (Finishing) = (SH - AH)*SR = (3360 -2990)*$20 = $7400 (Favourable)