Question

In: Accounting

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing....

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 1.00 hours
Zeta7 3.0 kilos 4.5 liters 0.30 hours 0.80 hours

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

Material Purchases Purchase Cost Standard
Price
Used in
Production
X442 14,200 kilos $55,380 $3.70 per kilo 8,700 kilos
Y661 15,200 liters $22,800 $1.60 per liter 13,200 liters

The following additional information is available:

The company recognizes price variances when materials are purchased.

The standard labor rate is $22.00 per hour in Sintering and $18.10 per hour in Finishing.

During May, 1,200 direct labor-hours were worked in Sintering at a total labor cost of $27,240, and 2,870 direct labor-hours were worked in Finishing at a total labor cost of $60,270.

Production during May was 1,700 Alpha6s and 1,800 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.

Solutions

Expert Solution

Solution 1:

Standard cost card - Alpha 6
Particulars Per unit cost
Direct Material:
X442 (2*$3.70) $7.40
Y661 (1.50*$1.60) $2.40
Direct Labor:
Sintering (0.1*$22) $2.20
Finishing (1*$18.10) $18.10
Total $30.10
Standard cost card - Zeta 7
Particulars Per unit cost
Direct Material:
X442 (3*$3.70) $11.10
Y661 (4.5*$1.60) $7.20
Direct Labor:
Sintering (0.3*$22) $6.60
Finishing (0.8*$18.10) $14.48
Total $39.38

Solution 2:

X442:

Standard quantity for actual production = (1700*2) + (1800*3) = 8800 Kilo

Actual quantity of material purchased = 14200 Kilo

Actual quantity of material used = 8700 Kilo

Standard price of material = $3.70 per kilo

Actula price of material = $55,380 /14200 = $3.90 per kilo

Material price variance = (SP - AP) * AQ purchased = ($3.70 - $3.90) * 14200 = $2,840 U

Material quantity variance = (SQ - AQ) * SP = (8800 - 8700) * $3.70 = $370 F

Y661:

Standard quantity for actual production = (1700*1.5) + (1800*4.5) = 10650 Litre

Actual quantity of material purchased = 15200 liters

Actual quantity of material used = 13200 Liters

Standard price of material = $1.60 per liter

Actual price of material = $22,800 /15200 = $1.50 per liter

Material price variance = (SP - AP) * AQ purchased = ($1.60 - $1.50) * 15200 = $1,520 F

Material quantity variance = (SQ - AQ) * SP = (10650 - 13200) * $1.60 = $4,080 U

Solution 3:

Sintering:

Standard hours for actual production = (1700*0.10) + (1800*0.3) = 710 hours

Actual hours = 1200 hours

Standard rate of labor = $22 per hour

Actual rate of labor = $27,240 / 1200 = $22.70 per hour

labor rate variance = (SR - AR) * AH = ($22 - $22.70) * 1200 = $840 U

Labor efficiency variance = (SH - AH) * SR = (710 - 1200) * $22 = $10,780 U

Finishing:

Standard hours for actual production = (1700*1) + (1800*0.8) = 3140 hours

Actual hours = 2870 hours

Standard rate of labor = $18.10 per hour

Actual rate of labor = $60,270 / 2870 = $21 per hour

labor rate variance = (SR - AR) * AH = ($18.10 - $21) * 2870 = $8,323 U

Labor efficiency variance = (SH - AH) * SR = (3140 - 2870) * $18.10 = $4,887 F


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