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	2.0 kilos	1.5 liters		0.10 hours	0.80 hours
Zeta7	3.0 kilos	2.5 liters		0.45 hours	0.90 hours

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

Material	Purchases		Purchase Cost	Standard Price		Used in Production
X442	14,800	kilos	$66,600	$4.30	per kilo	9,300	kilos
Y661	15,800	liters	$23,700	$1.60	per liter	13,800	liters

The following additional information is available:

1. The company recognizes price variances when materials are purchased.

2. The standard labor rate is $22.00 per hour in Sintering and $21.00 per hour in Finishing.

3. During May, 1,220 direct labor-hours were worked in Sintering at a total labor cost of $28,060, and 2,930 direct labor-hours were worked in Finishing at a total labor cost of $67,390.

4. Production during May was 2,300 Alpha6s and 1,600 Zeta7s.

Required:

1. Complete the standard cost card for each product, showing the standard cost of direct materials and direct labor.

2. Compute the materials price and quantity variances for each material.

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

Answer 1

	Units		Cost		Standard Cost
Particulars	Alpha 6	Zeta 7	Alpha 6	Zeta 7	Alpha 6	Zeta 7
Raw material
X442 - kgs	2.00	3.00	$       4.30	$         4.30	$       8.60	$ 12.90
Y661 - ltrs	1.50	2.50	$       1.60	$         1.60	$       2.40	$   4.00
Labour
Sintering - hrs	0.10	0.45	$    22.00	$       22.00	$       2.20	$   9.90
Finishing - hrs	0.80	0.90	$    21.00	$       21.00	$    16.80	$ 18.90
Total					$    30.00	$ 45.70

	Units		Cost		Standard Cost		Actual Units	Actual Cost	Actual cost p.u
Particulars	Alpha 6	Zeta 7	Alpha 6	Zeta 7	Alpha 6	Zeta 7
Raw material
X442 - kgs	2.00	3.00	$       4.30	$         4.30	$       8.60	$ 12.90	14,800.00	$ 66,600.00	$                  4.50
Y661 - ltrs	1.50	2.50	$       1.60	$         1.60	$       2.40	$   4.00	15,800.00	$ 23,700.00	$                  1.50
Labour
Sintering - hrs	0.10	0.45	$    22.00	$       22.00	$       2.20	$   9.90	1,220.00	$ 28,060.00	$                23.00
Finishing - hrs	0.80	0.90	$    21.00	$       21.00	$    16.80	$ 18.90	1,930.00	$ 67,390.00	$                34.92
Total					$    30.00	$ 45.70

Direct Material Price Varance = (Actual Price - Standard Price) x Actual quantity purchased

Direct Material Price Variance X442= ($4.50 - $4.30) x 14,800 = $2,960 U

Direct Material Price Variance Y661= ($1.50 - $1.60) x 15,800 = $1,520 F

Direct Labour Rate Variance = (Actual Rate - Standard Rate) x Actual Labour hours

Direct Labour Rate Variance Sintering = ($23 - $22) x 1,220 = $1,220 U

Direct Labour Rate Variance Finishing = ($34.92 - $21) x 2,930 = $40,785.60 U

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

Direct Material Quantity Variance X442 = (9,300 - 9,400) x $4.30 = $430 F

Direct Material Quantity Variance Y661 = (13,800 - 7,450) x $1.60 = $10,160 U

Direct Material Usage Variance = (Actual Labour Used - Standard Labour Allowed ) x Standard Rate

Direct Material Quantity Variance Sintering = (1,220 - 950) x $22 = $5,940 U

Direct Material Quantity Variance Finishing = (2,930 - 3,280) x $21 = $7,350 F