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:

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

2. The standard labor rate is $15.00 per hour in Sintering and $20.00 per hour in Finishing.

3. 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.

4. Production during May was 2,100 Alpha6s and 1,300 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

	Standard	Standard	Standard
Quantity or Hours (A)	Price or Rate (B)	Cost (AXB)
Alpha6:
Direct materials-X442	2	kilos	$4.10		per kilo	$8.20
Direct materials-Y661	1.4	litres	$1.50		per litre	$2.10
Direct labor-Sintering	0.5	hours	$15.00		per hour	$7.50
Direct labor-Finishing	0.9	hours	$20.00		per hour	$18.00
tal						$35.80
Zeta7:
Direct materials-X442	4	kilos	$4.10		per kilo	$16.40
Direct materials-Y661	3.4	litres	$1.50		per litre	$5.10
Direct labor-Sintering	0.1	hours	$15.00		per hour	$1.50
Direct labor-Finishing	0.9	hours	$20.00		per hour	$18.00
Totaal						$41.00

Part-2

2. Material price variance = [SP-AP] x AQ purchased

Material X442 = [$4.1 - $4.30] x 14600 = $2920 U

Material Y661 = [$1.5 - $1.40] x 15600 = $1560 F

Material quantity variance = [SQ-AQ used] x SP

Material X442 = [{(2 x 2100) + (4 x 1300)} - 9100] x $4.10 = $1230 F

Material Y661 = [{(1.4 x 2100) + (3.4 x 1300)} - 13600] x $1.50 = $9360 U

* X442 Actual Price per Kilos = 62780/14600=$4.30

**Y661, Actual Price Per Litre = 21840/15600=$1.40/ Litre

Direct material variance - Material X442
Material price variance	2920U
Material quantity variance	1230F
Direct material variance - Material Y661
Material price variance	1560 F
Material quantity variance	9360U

Part-3

3. Direct labor rate variance = [SR-AR] x AH worked

Sintering = [15- 23.10] x 1300 = $10530 U

Finishing = [20 - 22] x 2910 = $5820 U

*Actual Rate/ Hour for Sintering :- $30030/1300=$23.10

**Actual Rate/ Hour for Finishing :- $64020/2910=$22

Direct labor efficiency variance = [SH-AH] x SR

Sintering = [{(0.50 x 2100) + (0.10 x 1300)} - 1300] x $15 = $1800 U

Finishing = [{0.90 x 2100) + (0.90 x 1300)} - 2910] x $20 = $3000 F

Direct labor variances - Sintering:
Labor rate variance	10530U
Labor efficiency variance	1800U
Direct labor variances - Finishing:
Labor rate variance	5820U
Labor efficiency variance	3000F