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 2.5 kilos 2.5 liters 0.40 hours 0.90 hours
Zeta7 4.5 kilos 4.5 liters 0.35 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 16,000 kilos $57,600 $3.40 per kilo 10,500 kilos
Y661 17,000 liters $25,500 $1.60 per liter 15,000 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, 1,400 direct labor-hours were worked in Sintering at a total labor cost of $34,300, and 3,050 direct labor-hours were worked in Finishing at a total labor cost of $70,150.

  4. Production during May was 2,600 Alpha6s and 1,000 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

Paart-1
Standard Standard Standard
Quantity or Hours Price or Rate Cost
Alpha6:
Direct materials-X442 2.5 kilos 3.4 per kilo 8.5
Direct materials-Y661 2.5 litres 1.6 per litre 4
Direct labor-Sintering 0.4 hours 22 per hour 8.8
Direct labor-Finishing 0.9 hours 21 per hour 18.9
tal 40.2
Zeta7:
Direct materials-X442 4.5 kilos 3.4 per kilo 15.3
Direct materials-Y661 4.5 litres 1.6 per litre 7.2
Direct labor-Sintering 0.35 hours 22 per hour 7.7
Direct labor-Finishing 0.8 hours 21 per hour 16.8
Total 47

Part-2

Part-2
2. Material price variance = [SP-AP] x AQ purchased
Material X442 = [$3.40 - $3.60] x 16000 = $3200 U
Material Y661 = [$1.60 - $1.50] x 17000 = $1700 F
Material quantity variance = [SQ-AQ used] x SP
Material X442 = [{(2.5 x 2600) + (4.5 x 1000)} - 10500] x $3.40 = $200 F
Material Y661 = [{(2.5 x 2600) + (4.5 x 100)} - 15000] x $1.60 = $6400 U
* X442 Actual Price per Kilos = 57600/16000=$3.60
**Y661, Actual Price Per Litre = 25500/17000=$1.50/ Litre
Direct material variance - Material X442
Material price variance 3200 U
Material quantity variance 200F
Direct material variance - Material Y661
Material price variance 1700F
Material quantity variance 6400U
Part-3
3. Direct labor rate variance = [SR-AR] x AH worked
Sintering = [22 - 24.50] x 1400 = $3500 U
Finishing = [21 - 23] x 3050 = $6100 U
*Actual Rate/ Hour for Sintering :- $34300/1400=$24.50
**Actual Rate/ Hour for Finishing :- $70150/3050=$23
Direct labor efficiency variance = [SH-AH] x SR
Sintering = [{(0.40 x 2600) + (0.35 x 1000)} - 1400] x $22 = $220 U
Finishing = [{(0.90 x 2600) + (0.80 x 1000)} - 3050] x $21 = $1890 F
Direct labor variances - Sintering:
Labor rate variance 3500 U
Labor efficiency variance 220 U
Direct labor variances - Finishing:
Labor rate variance 61100 U
Labor efficiency variance 1890 F

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