Question

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.

Answer 1

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