Question

New Jersey Valve Company manufactured 9,000 units during January of a control valve used by milk processors in its Camden plant. Records indicated the following:

Direct labor 36,900 hr. at $13.60 per hr.

Direct material purchased 30,000 lb. at $2.70 per lb.

Direct material used 25,900 lb.

The control valve has the following standard prime costs: Direct material 3 lb. at $2.60 per lb. $ 7.80 Direct labor 4 hr. at $14.00 per hr. 56.00 Standard prime cost per unit $ 63.80 Required:

A - Prepare a schedule of standard production costs for January, based on actual production of 9,000 units.

B - For the month of January, compute the following variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" for no effect)

Direct Material Price Variance:

Direct Material Quantity Variance:

Direct Material Purchase Price Variance:

Direct Labor Rate Variance:

Direct Labor Efficiency Variance:

Answer 1

• All working forms part of the answer
• Requirement ‘a’

Standard DATA for		9000	units
	Quantity (SQ)	Rate (SR)	Standard Cost
Direct Material	27000 [9000 units x 3 lbs]	$                2.60	$           70,200.00
Direct labor	36000 [9000 units x 4 hrs]	$              14.00	$        504,000.00
TOTAL STANDARD COST			$ 574,200

• Requirement ‘b’

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                        2.60	-	$                       2.70	)	x	25900
	-2590
	Variance		$              2,590.00			Unfavourable-U
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	27000	-	25900	)	x	$                           2.60
	2860
	Variance		$              2,860.00			Favourable-F

Material Purchase Price Variance
(	Standard Rate	-	Actual Rate	)	x	Purchase Quantity
(	$                        2.60	-	$                       2.70	)	x	30000
	-3000
	Variance		$              3,000.00			Unfavourable-U

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     14.00	-	$                    13.60	)	x	36900
	14760
	Variance		$            14,760.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	36000	-	36900	)	x	$                        14.00
	-12600
	Variance		$            12,600.00			Unfavourable-U