Question

PROBLEM TWO

Gabby Company began the manufacture of new paging machines. The company installed a standard costing system to account for manufacturing costs. The standard cost per unit is:

                        Direct materials           3 pound @ $5 per pound

                        Direct labor                 .5 hours @ $20 per direct labor hour

                        Variable overhead        75% of direct labor cost

Actual production was 4,000 units; actual sales were 2,500 units.

There is no beginning inventory for direct materials.

Other data are:

1. Materials price variance is $3,250 unfavorable.
2. Materials efficiency variance is $2,500 unfavorable.
3. Direct labor rate variance is $1,900 unfavorable.
4. Direct labor efficiency variance is $2,000 favorable.
5. Revenue was $125,000.
6. Purchases of direct materials is $68,250.
7. Actual variable overhead is $29,000.

REQUIRED:

1. Determine the following factors:

1. standard hours allowed for actual production
2. actual direct labor hours worked
3. actual direct labor wage rate per hour
4. standard quantity of materials allowed for production
5. actual quantity of materials used
6. actual quantity of direct materials purchased
7. actual direct materials price per pound

Answer 1

Answer:

a)

. Standard direct manufacturing labor hours allowed:

Actual units produced*Standard hours required per unit

= 4000 x 1/2 = 2000 hours

b)

. Labor Efficiency variance:

= (Actual hours worked - standard hours allowed) x Standard Rate
($2000) = (Actual Hours worked - 2000) x $20
Actual hours worked = 1900 hours

c)

Labor rate variance:

= (Actual rate - Standard rate) x Actual hours worked
$1900 = (Actual rate - $20) x 1900
Actual rate = $21

d)

Standard Quantity of Direct Material Allowed:

Actual units produced*Standard quantity required per unit

= 4000 x 3 = 12000 lbs

e)

. Material Quantity variance:

= (Actual material used - Standard Quantity) x Standard Price
$2500 = (Actual Material Used - 12000) x $5
Actual Material Used = 12500 lbs

f).

Material Price variance:

= Actual Quantity x Actual Rate - Actual Quantity x Standard rate
$3250 = $68250 - Actual Quantity x $5
Actual Quantity purchased = 13000 lbs

g)

. Actual direct material price per pound

= $68250 / 13000 = $5.25 per lbs