Question

1. The normal capacity of the Malloy Company is 20,000 direct labor hours and 10,000 units per month. A finished unit requires 15 pounds of materials at an estimated cost of $1.00 per pound. The estimated cost of labor is $12.00 per hour. It is estimated that overhead for a month will be $15,000. During the month of June, 19,000 direct labor hours were worked at an average rate of $11.50 an hour. The number of units produced was 9,000, using all 132,000 pounds of material that were purchased at a cost of $1.05 per pound. a. Prepare a standard cost summary showing the standard unit cost. b. Calculate the material and labor variances. c. Prepare entries in general journal form to charge materials and labor to work in process. Indicate whether the variances are favorable or unfavorable.

Answer 1

a)

Standard Data of Materials for actual output:

Material required per pound = 15 pounds

Standard material quantity = 15 pounds*9000 = 135000

Material rate per pound = $1 per pound

Actual data for Materials:

Actual material quantity = 132000 pounds

Actual rate per pound = $1.05 per pound

Standard Data of labor for actual output:

Standard labor rate per hour = $12

Standard working hours for actual output = (20000/10000) *9000 = 18000 hours

Actual data for Labor:

Actual labor rate per hour = $11.50

Actual working hours = 19000 hours

b)

Material rate variance = (Standard rate - Actual rate)*Actual quantity = (1 - 1.05)*132000 = 0.05*132000 = 6600 Unfavorable

Material quantity variance = (Standard quantity - Actual quantity)*Standard rate = (135000 - 132000)*1 = 3000*1 = 3000 Favorable

Material cost variance = Standard rate*Standard quantity - Actual rate*Actual quantity

= 1*135000 - 1.05*132000 = 135000 - 138600 = 3600 Unfavorable

Labor rate variance = (Standard rate - Actual rate)*Actual working hours

= (12 - 11.5)*19000 = 9500 Favorable

Labor Efficiency variance = (Standard working hours - Actual working hours)*Standard rate

= (18000 - 19000)*12 = 12000 Unfavorable

Labor cost variance = Standard rate*Standard working hours - Actual rate*Actual working hours

= 12*18000 - 11.5*19000 = 216000 - 218500 = 2500 Unfavorable