Question

On May 1, 2019, Goodman Co. began the manufacture of a new device known as “X”. Goodman installed a standard costing system in accounting for manufacturing costs of its product X. The standard costs for one unit of X are as follows: Raw materials: 6 lbs. @ $1 per lb.* ……………………. $6.00 Direct labor: 1 hour @ $4 per hour* …………………. 4.00 Overhead: 75% of direct labor costs ……………… 3.00 * According to the standard: - One unit of X requires 6 pounds of raw materials, and the std. cost of raw materials is $1 per pound. - One unit of X requires 1 hour of direct labor, and the std. direct labor rate is $4 per hour. During May, 4,000 units of X were manufactured, and 2,500 units of X were sold. The following data were obtained from Goodman’s records for the month of May: Sales $50,000, Purchases (26,000 pounds) $27,300 Material price variance (U) 1,300, Material quantity variance (U) 1,000 Direct labor rate variance (U) 760, Direct labor efficiency variance (F) 800 * U (Unfavorable variance): Actual costs > Standard costs. * F (Favorable variance): Actual costs < Standard costs. REQUIRED: (Show your detailed computations!) Compute each of the following items for Goodman for the month of May:

1. Standard quantity of raw materials allowed (in pounds).

2. Actual quantity of raw materials used (in pounds). (Hint: Raw materials purchased (AQp) and used (AQu) are different amounts.)

3. Actual unit price of raw materials purchased

4. Standard direct labor hours allowed.

5. Actual direct labor hours worked.

6. Actual direct labor rate.

7. Total labor variance.

Answer 1

Based on the above information, we can calculate the required output :-

1.) Standard Quantity of Raw Materials Allowed :-

1 Unit of X requires 6 pounds of raw materials  

Therefore, 4000 units of X manufactured requires = 4000 * 6 = 24,000 units of raw materials.

2.) Actual Quantity of Raw Materials Used :-

It is mentioned that there is an Unfavorable material quantity variance of 1000 which means :-

Actual Materials Used - Standard Materials = 1,000 ( Let Actual Materials used be "X")

X - 26,000 = 1000

X = 27,000 units of raw materials has been used.

3.) Actual unit price of raw materials :-

From the question, we can see that the company has paid $27,300 for 26,000 pounds of raw materials purchased.

Unit price of Raw material purchased = $27,300/26,000 pounds = $1.05 per unit of raw material

4.) Standard Direct Labor Hours allowed

Per the observation of the question, we can understand that one unit of X requires one direct labor hour.

Cost to the company per direct labor hour = $4

No. of Direct labor hours allowed = 1 per unit of X * 4,000 units of X manufactured = 4,000 direct labour hours

Standard Direct Labor hours cost = 4 * 4,000 = $16,000

5.) Actual Direct Labor hours worked.

We see that there is a favorable direct labor efficiency variance of 800 which means

Standard Labor hours - Actual labor hours = 800 ( Let Actual direct labor hours be "X")

4,000 - X = 800

X = 3,200 Actual Direct Labor hours worked.

6.) Actual Direct Labor Rate

Actual hours * Actual Rate - Actual Hours * Standard Rate (Let X be the actual direct labor rate)

3200 * X - 3,200 * 4 = 760

3200 * X = 760 +12800

3200 X = 13560

X = 4.2375 Actual Labor Rate

7.) Total Labor Variance

Actual Labor Cost - Standard Labor Cost for actual output

=4.2375 * 4000 units - 4 * 4000 units

= 0.2375 * 4000 units

= $950 Total Labor Variance