Question

Hutto Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.

Direct materials (16 lbs. @ $4 per lb.)			$64
Direct labor (3 hrs. @ $15 per hr.)			45

During May the company incurred the following actual costs to produce 8,600 units.

Direct materials (139,900 lbs. @ $3.80 per lb.)		$	531,620
Direct labor (29,100 hrs. @ $15.10 per hr.).			439,410

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate

(1) Compute the direct materials price and quantity variances. Indicate whether each variance is favorable or unfavorable
(2) Compute the direct labor rate variance and the direct labor efficiency variance. Indicate whether each variance is favorable or unfavorable.

Answer 1

Answer -

As per given information,

AQ (Actual quantity) = 139900 lbs.

SQ (Standard quantity) = Lbs. required per unit * Units produced

= 16 lbs. * 8600 units

= 137600 lbs.

AP (Actual price) = $3.80 per lbs.

SP (Standard price) = $4 per lbs.

AH (Actual hours) = 29100 hours

SH (Standard hours) = Hours required per unit * Units produced

= 3 hours per unit * 8600 units

= 25800 hours

AR (Actual rate) = $15.10 per hour

SR (Standard rate) = $15 per hour

1. Answer -

Direct materials price variances = $27980 Favorable

Direct materials quantity variances = $9200 Unfavorable

Total direct materials variances = $18780 Favorable

Calculation:

Direct materials price variances:

= (AQ * AP) - (AQ * SP)

= (139900 lbs. * $3.80 per lbs.) - (139900 lbs. * $4 per lbs.)

= $531620 - $559600

= $27980 Favorable

Direct materials quantity variances:

= (AQ * SP) - (SQ * SP)

= (139900 lbs. * $4 per lbs.) - (137600 lbs. * $4 per lbs.)

= $559600 - $550400

= $9200 Unfavorable

Total direct materials variances:

= Direct materials price variances - Direct materials quantity variances

= $27980 - $9200

= $18780 Favorable

2. Answer -

Direct labor rate variances = $2910 Unfavorable

Direct labor efficiency variances = $49500 Unfavorable

Total direct labor variances = $52410 Unfavorable

Calculation:

Direct labor rate variances:

= (AH * AR) - (AH * SR)

= (29100 hours * $15.10 per hour) - (29100 hours * $15 per hour)

= $439410 - $436500

= $2910 Unfavorable

Direct labor efficiency variances:

= (AH * SR) - (SH * SR)

= (29100 hours * $15 per hour) - (25800 hours * $15 per hour)

= $436500 - $387000

= $49500 Unfavorable

Total direct labor variances:

= Direct labor rate variances + Direct labor efficiency variances

= $2910 + $49500

= $52410 Unfavorable