Question

Problem 9-21 Multiple Products, Materials, and Processes [LO9-4, LO9-5]

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials—X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis):

	Raw Material			Standard Labor Time
Product	X442	Y661		Sintering	Finishing
Alpha6	2.0 kilos	1.5 liters		0.10 hours	0.80 hours
Zeta7	3.0 kilos	2.5 liters		0.45 hours	0.90 hours

Information relating to materials purchased and materials used in production during May follows:

Material	Purchases		Purchase Cost	Standard Price		Used in Production
X442	14,800	kilos	$66,600	$4.30	per kilo	9,300	kilos
Y661	15,800	liters	$23,700	$1.60	per liter	13,800	liters

The following additional information is available:

1. The company recognizes price variances when materials are purchased.

2. The standard labor rate is $22.00 per hour in Sintering and $21.00 per hour in Finishing.

3. During May, 1,220 direct labor-hours were worked in Sintering at a total labor cost of $28,060, and 2,930 direct labor-hours were worked in Finishing at a total labor cost of $67,390.

4. Production during May was 2,300 Alpha6s and 1,600 Zeta7s.

Required:

1. Complete the standard cost card for each product, showing the standard cost of direct materials and direct labor.

2. Compute the materials price and quantity variances for each material.

3. Compute the labor rate and efficiency variances for each operation.

Answer 1

SOLUTION:

1. standard cost card for each product, showing the standard cost of direct materials and direct labor.

	Standard quantity or hours	Standard price or rate	Standard cost
Alpha6:
Direct materials-X442	2 Kilos	4.3 Per kilo	8.6
Direct materials-Y661	1.5 Liters	1.6 Per liter	2.4
Direct labor-Sintering	0.1 Hours	22 Per hour	2.2
Direct labor-Finishing	0.8 Hours	21 Per hour	16.8
Total			30
Zeta7:
Direct materials-X442	3 Kilos	4.3 Per kilo	12.9
Direct materials-Y661	2.5 Liters	1.6 Per liter	4
Direct labor-Sintering	0.45 Hours	22 Per hour	9.9
Direct labor-Finishing	0.9 Hours	21 Per hour	18.9
Total			45.7

2. Materials price and quantity variances for each material:

Material X442:
Material price variance=Actual material purchased*(Standard rate for material-Actual rate for material)
Actual material purchased=14800 Kilos
Standard rate=$ 4.3 per kilo
Actual rate=66600/14800=$4.5 per kilo
Material price variance=14800*(4.3-4.5)=2960 U
(Actual rate is more than the standard rate.Hence, variance is unfavorable)

Material quantity variance=Standard rate for materials*(Standard materials required-Actual material used)
Standard rate=$ 4.3 per kilo
Standard materials required=Actual units produced*Material required per unit=(2300*2)+(1600*3)=9400 kilos
Actual material used=9300 kilos
Material quantity variance=4.3*(9400-9300)=430 F
(Actual material used is less than the standard material required.Hence, variance is favorable)

Material Y661:
Material price variance=Actual material purchased*(Standard rate for material-Actual rate for material)
Actual material purchased=15800 liters
Standard rate=$ 1.6 per liter
Actual rate=23700/15800=$1.5 per liter
Material price variance=15800*(1.6-1.5)=1580 F
(Actual rate is less than the standard rate.Hence, variance is favorable)

Material quantity variance=Standard rate for materials*(Standard materials required-Actual material used)
Standard rate=$ 1.6 per liter
Standard materials required=Actual units produced*Material required per unit=(2300*1.5)+(1600*2.5)=7450 liters
Actual material used=13800 liters
Material quantity variance=1.6*(7450-13800)=10160 U
(Actual material used is more than the standard material required.Hence, variance is unfavorable)

3. Labor rate and efficiency variances for each operation:

Sintering:
Labor rate variance=Actual hours worked*(Statndard labor rate-Actual labor rate)
Actual hours worked=1220 hours
Standard labor rate=$22 per hour
Actual labor rate=Actual direct labor cost/Actual hours=28060/1220=$23 per hour
Labor rate variance=1220*(22-23)=1220 U
(Actual labor rate is more than standard labor rate.Hence variance is unfavorable)

Labor efficiency variance=Standard labor rate*(Standard labor hours required-Actual labor hours worked)
Standard labor rate=$22 per hour
Standard labor hours required=Actual units produced*Labor hours required per unit=(2300*0.10)+(1600*0.45)=950 hours
Actual hours worked=1220 hours
Labor efficiency variance=22*(950-1220)=5940 U
(Actual hours worked is more than the standard hours required.Hence, variance is unfavorable)

Finishing:
Labor rate variance=Actual hours worked*(Statndard labor rate-Actual labor rate)
Actual hours worked=2930 hours
Standard labor rate=$21 per hour
Actual labor rate=Actual direct labor cost/Actual hours=67390/2930=$23 per hour
Labor rate variance=2930*(21-23)=5860 U
(Actual labor rate is more than standard labor rate.Hence variance is unfavorable)

Labor efficiency variance=Standard labor rate*(Standard labor hours required-Actual labor hours worked)
Standard labor rate=$21 per hour
Standard labor hours required=Actual units produced*Labor hours required per unit=(2300*0.80)+(1600*0.90)=3280 hours
Actual hours worked=2930 hours
Labor efficiency variance=21*(3280-2930)=7350 F
(Actual hours worked is less than the standard hours required.Hence, variance is favorable)