Question

March 1, 2017, Goodman Co. began the manufacture of a new device known as “X”.

Goodman installed a standard costing system in accounting for manufacturing costs of its product X.

The standard costs for one unit of X are as follows:

Raw materials:              6 lbs. @ $1 per lb.^* …………………….         $6.00

Direct labor:                  1 hour @ $4 per hour^* …………………. 4.00

Overhead:                     75% of direct labor costs ……………… 3.00

* According to the standard:

- One unit of X requires 6 pounds of raw materials, and the std. cost of raw materials is $1 per pound.

- One unit of X requires 1 hour of direct labor, and the std. direct labor rate is $4 per hour.

During May, 4,000 units of X were manufactured, and 2,500 units of X were sold.

The following data were obtained from Goodman’s records for the month of May:

Sales....................................... $50,000,    Purchases (26,000 pounds) .................................. $27,300

Material price variance (U) ......... 1,300,    Material quantity variance (U)............................................ 1,000

Direct labor rate variance (U) ......     760,    Direct labor efficiency variance (F) ........................................... 800

                             * U (Unfavorable variance): Actual costs > Standard costs.

* F (Favorable variance):      Actual costs < Standard costs.

REQUIRED: (Show your detailed computations!)

Compute each of the following items for Goodman for the month of May:

1. Standard quantity of raw materials allowed (in pounds).
2. Actual quantity of raw materials used (in pounds).

                     (Hint: Raw materials purchased (AQ_p) and used (AQ_u) are different amounts.)

3. Actual unit price of raw materials purchased
4. Standard direct labor hours allowed.
5. Actual direct labor hours worked.
6. Actual direct labor rate.
7. Total labor variance.

Answer 1

	Cost card for 4,000 units
	Particulars	Standard cost for actual production	Particulars	Actual cost
	Quantity & hour	Rate($/lb & $/hr)	Amount	Quantity & hour	Rate($/lb & $/hr)	Amount
	Direct Material	24000.00	1.00	$                24,000	Material purchased	26000	1.05	$                    27,300.00
		(4000 units * 6 lb)			Material used	25000	1.05	$                    26,250.00
					Closing material	1000		$                      1,050.00
	Direct labour	4000.00	4.00	$                16,000	Direct labour	3800	4.20	$                    15,960.00
		(4000 units *1 hr)
	Variable overhead	4000.00	3.00	$                12,000	Variable overhead	3800	27.27	$                 103,610.00
				($16,000 *75%)			($ 103610/41000 hr)
	Total Standard manufacturing cost	$                52,000
	Required
1	Standard quantity of raw materials allowed (in pounds).=4000 units * 6lb= 24,000 pounds
2	Actual quantity of raw materials used (in pounds).
	Material efficiency variance = (Standard Quantity - Actual Quantity used) * Standard rate
	(1000) = (24000 pound-Actual qty used) * $1/lb
	Actual qty used= 24000+1000= 25000 pound
3	Actual unit price of raw materials purchased= $27,300/26,000 pound= $1.05/lb
4	Standard direct labor hours allowed= 4000 unit*1 hr/unit= 4,000 hour
5	Actual direct labor hours worked
	Labor efficiency variance = (Standard Hours - Actual Hours) * Standard rate
	800 = (4000 hr-Actual hr) *$4/hr
	Actual direct labor hours worked.= (16000-800)/4= 3800 hour
6	Actual direct labor rate.
	Labor Rate variance = (Standard rate - Actual rate) * Actual hours
	(760) = ( $4/hr-Actual rate ) * 3800 hr
	Actual direct labor rate=(15,200+760)/3800= $4.2/hour
7	Total labor variance.= Labout rate variance+ labour efficiency variance
	Total labor variance.= (800-760)=$40 (unfavourable)
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