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.)

	Material Quantity Variance

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

	Standard Direct Labor Rate .

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.)

	Direct Labor Efficiency Variance

Answer 1

1.total cost of purchases for october.

actual purchase price *actual quantity purchased

=>$2.40*1,125,000

=>$2,700,000.

2.direct material price variance.

actual quantity used*(actual price - standard price)

=>1,010,000*(2.40-2.20)

=>$202,000 U.............(unfavorable since actual price is greater than standard price).

3.material quantity variance

=>standard price *(actual quantity used - standard quantity to be used)

=>$2.20*(1,010,000 - 980,000)

=>$66,000...U.........(unfavorable since actual quantity is greater than standard quantity used).

4.standard direct labour rate

=>given direct labour rate variance = $5,600 F.

actual hours *( actual rate - standard rate)

=>11,000*(7.60 - SR) = -$5,600.............(negative since favorable variance indicates lower actual rate)

83,600 - 11,000SR = -5,600

=>11,000SR = 89,200

=>SR = 89,200 / 11,000

=>$8.11.

5.direct labour efficiency variance:

standard rate *(actual hours - standard hours)

=>$8.11*(11,000-12,000)

=>$8,110 F.........(since actual hours are less we have a favorable balance)