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	1.4 liters		0.50 hours	0.90 hours
Zeta7	4.0 kilos	3.4 liters		0.10 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	14,600 kilos	$62,780	$4.10	per kilo	9,100	kilos
Y661	15,600 liters	$21,840	$1.50	per liter	13,600	liters

  

The following additional information is available:
a.	The company recognizes price variances when materials are purchased.
b.	The standard labor rate is $15.00 per hour in Sintering and $20.00 per hour in Finishing.
c.	During May, 1,300 direct labor-hours were worked in Sintering at a total labor cost of $30,030, and 2,910 direct labor-hours were worked in Finishing at a total labor cost of $64,020.
d.	Production during May was 2,100 Alpha6s and 1,300 Zeta7s.

  

Requied:
1.	Complete the standard cost card for each product, showing the standard cost of direct materials and direct labor. (Round your answers to 2 decimal places.)

     

2.	Compute the materials price and quantity variances for each material. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

     

3.	Compute the labor rate and efficiency variances for each operation. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

     

Answer 1

1. Standard Cost of each product is as follows:

2.

a) Material Price Variance = (Actual Price of Raw material - Standard Price of Raw material)

= [(Actual Price*Actual Qty Purchased) - (Standard Price*Actual Qty Purchased)]

Material Price Variance for X442 = [($4.1*14,600) - (62780/14,600)*14,600]

= $2,920 U

Material Price Variance for Y661 = [($1.5*15,600) - (21840/15,600)*15,600]

= $1,560 F

b) Material Quantity Variance = (Standard Qty - Actual Qty) * Standard Price

Material Quantity Variance for X442 = [{(2*2100) + (4*1300)} - 9100] * $4.1

= $1,230 F

Material Quantity Variance for Y661 = [{(1.4*2100) + (3.4*1300)} - 13600] * $1.5

= $9,360 U

3.

a) Direct Labour Rate Variance = (Standard Rate - Actual Rate) * Actual Hours worked

Direct Labour Rate Variance of Sintering = [($15) - ($30,030/1,300)] * 1300

= $10,530 U

Direct Labour Rate Variance of Finishing = [($20) - ($64,020/2,910)] * 2910

= $5,820 U

b) Direct Labour Efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate

Direct Labour Efficiency Variance of Sintering = [{(0.5*2100) + (0.1*1300)} - 1300] * $15

= $1,800 U

Direct Labour Efficiency Variance of Finishng = [{(0.9*2100) + (0.9*1300)} - 2910] * $20

= $3,000 F