Question

Amber Company produces iron table and chair sets. During October, Amber’s costs were as follows:

Actual purchase price	$ 1.80	per lb.
Actual direct labor rate	$ 7.00	per hour
Standard purchase price	$ 1.60	per lb.
Standard quantity for sets produced	920,000	lbs.
Standard direct labor hours allowed	15,000
Actual quantity purchased in October	1,065,000	lbs.
Actual direct labor hours	7,000
Actual quantity used in October	950,000	lbs.
Direct labor rate variance	$5,000	F

Required:
a. Calculate the total cost of purchases for October.



b. Compute the direct materials price variance based on quantity purchased. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)



c. Calculate the direct materials quantity variance based on quantity used. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)



d. Compute the standard direct labor rate for October. (Round your answer to 2 decimal places.)



e. Compute the direct labor efficiency variance for October. (Round your intermediate calculation to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Answer 1

a)	Total Cost of Purchase
	(A)	Actual Price per lb.	$                   1.80
	(B)	Quantitry Purchased	1065000
	(A*B)	Total Cost of Purchase	$ 1,917,000.00

b)	Material Price Variance
	(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
	(	$                          1.60	-	$       1.80	)	x	1065000
		-213000
		Variance		213000			Unfavourable-U

c)	Material Quantity Variance
	(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
	(	920000	-	950000	)	x	$       1.60
		-48000
		Variance		48000			Unfavourable-U

d)	Actual labour hour	7000
	Actual rate per Labor hour	$7.00
	Actual Cost for labor	49000
	Labor Rate variance	5000 F
	This means Standard cost at standard rate would be (49000+5000) $54000
	Standard rate	(cost at standard rate/actual labor hours)
	Standard rate	(54000/7000)
	Standard rate per labor hour	$ 7.71

e)	Labour Efficiency Variance
	(	Standard Hours	-	Actual Hours	)	x	Standard Rate
	(	15000	-	7000	)	x	$       7.71
		61680
		Variance		61680			Favourable-F