Question

Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below:

	Standard Quantity or Hours		Standard Price or Rate			Standard Cost
Direct materials	7.20	pounds	$	2.00	per pound	$	14.40
Direct labor	0.35	hours	$	5.50	per hour	$	1.93

During the most recent month, the following activity was recorded:

1. 21,000.00 pounds of material were purchased at a cost of $1.70 per pound.

2. All of the material purchased was used to produce 2,500 units of Zoom.

3. 725 hours of direct labor time were recorded at a total labor cost of $5,438.

Required:

1. Compute the materials price and quantity variances for the month.

2. Compute the labor rate and efficiency variances for the month.

(For all requirements, Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Round your intermediate calculations to the nearest whole dollar.)

Answer 1

Ans. 1 a	Materials price variance = (Standard price   - Actual price) * Actual quantity
	($2.00 - $1.70) * 21,000
	$0.30 * 21,000
	$6,300	Favorable
Ans. 1 b	Direct materials quantity variance = (Standard quantity - actual quantity) * Standard price
	(18,000 - 21,000) * $2.00
	-3,000* $2.00
	-$6,000	or   $6,000 unfavorable
	*Standard quantity = Actual output * Standard quantity per unit of output
	2,500 units * 7.20 pounds
	18,000 pounds
Ans. 2 a	Direct labor rate variance = (Standard rate   - Actual rate) * Actual hours
	($5.50 - $7.50) * 725
	-$2 * 725
	-$1,450	or   $1,450 unfavorable
	*Actual rate   = Actual labor cost / Actual hours
	$5,438 / 725
	$7.50	per hour
Ans. 2 b	Direct labor efficiency variance = (Standard hours - actual hours) * Standard rate
	(875 - 725) * $5.50
	150 * $5.50
	$825	favorable
	*Standard hours = Actual output * Standard hours per unit of output
	2,500 units * 0.35 hrs.
	875 hours
	*If the standard cost, rate or price and hours or quantity are higher than the actual it means the variance is favorable.
	*If the standard cost, rate or price and hours or quantity are lower than the actual it means the variance is unfavorable.