Question

E9-13 Determining Actual Costs, Standard Costs, and Variances [LO 9-3, 9-4]

Amber Company produces iron table and chair sets. During October, Amber’s costs were as follows:

Actual purchase price	$ 2.40	per lb.
Actual direct labor rate	$ 7.60	per hour
Standard purchase price	$ 2.20	per lb.
Standard quantity for sets produced	980,000	lbs.
Standard direct labor hours allowed	12,000
Actual quantity purchased in October	1,125,000	lbs.
Actual direct labor hours	11,000
Actual quantity used in October	1,010,000	lbs.
Direct labor rate variance	$5,600	F

Required:
1. Calculate the total cost of purchases for October.



2. Compute the direct materials price variance based on quantity purchased. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)



3. Calculate the direct materials quantity variance based on quantity used. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)



4. Compute the standard direct labor rate for October. (Round your answer to 2 decimal places.)



5. Compute the direct labor efficiency variance for October. (Round your intermediate calculation to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Answer 1

1) Total Cost of purchase = Actual purchase price*actual quantity purchased = 2.40*1125000 = $2700000

2) Material price variance = (Standard price-actual price) actual quantity purchased

                                      = (2.20-2.40)*1125000

Material price variance = $225000 U

3) Material quantity variance = (Standard quantity-actual quantity)Standard rate

                                         = (980000-1125000)*2.20

Material quantity variance = 319000 U

4) Standard direct labour rate :

Direct labour rate variance = (Standard rate-actual rate)actual hours

5600 = (X-7.60)*11000

5600 = 11000X-83600

-11000X = -89200

X(standard rate) = 89200/11000 = $8.11 per hour

5) Direct labour efficiency variance = (12000-11000)*8.11 = 8110 F