In: Accounting
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 |
3.4 liters |
0.20 hours |
0.80 hours |
|
Zeta7 |
4.0 kilos |
5.0 liters |
0.25 hours |
0.90 hours |
|
Information relating to materials purchased and materials used in production during May follows:
Material |
Purchases |
Purchase Cost |
Standard |
Used in |
||
X442 |
15,900 kilos |
$55,650 |
$3.30 |
per kilo |
10,400 |
kilos |
Y661 |
16,900 liters |
$23,660 |
$1.50 |
per liter |
15,800 |
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 $20.50 per hour in Finishing.
During May, 1,300 direct labor-hours were worked in Sintering at a total labor cost of $31,720, and 3,040 direct labor-hours were worked in Finishing at a total labor cost of $68,400.
Production during May was 2,500 Alpha6s and 1,400 Zeta7s.
Requied:
1. Complete the standard cost card for each product, showing the standard cost of direct materials and direct labor. (Round your answers to 2 decimal places.)
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2. Compute the materials price and quantity variances for each material. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)
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3. Compute the labor rate and efficiency variances for each operation. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)
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Dear Friend,
In order to Calculate Material Variances and Labour Variances,
We need to Find the Various Elements related to it. Such as we need to Calculate
SQ = Standard Quantity Per Unit
AQ = Actual Quantity Per Unit
SP = Standard Price Per Unit
AP = Actual Price Per Unit
SH = Standard Hours Per Unit
SR = Standard Rate Per Hour
AH = Actual Hours Per Unit
AR = Actual Rate Per Hour.
1 . Calculation of Material Variances:
a. Material X442:
Given,
Standard Price per Unit of X442 = $ 3.30
Standard Quantity per Unit of X442 = (2500*2) + (1400*4) = 5000 + 5600 = 10,600 Kilos
Actual Price per Unit of X442 = $ 55,650 / 15,900 Kilos = $ 3.5
Actual Quantity per Unit of X442 for Price Variance = 15,900 Kilos
Actual Quantity per Unit of X442 for Usage Variance = 10,400 Kilos
Now, Calculation of Material Price Variance and Material Usage Variance:
Material Price Variance = (AQ*SP) - (AQ*AP)
=(15,900*3.30) - (15900*3.50)
=$ 52,470 - $ 55,650
= $ 3,180 (U)
Material Usage Variance = (SQ*SP) - (AQ*SP)
= (10,600*3.30) - (10,400*3.30)
= $ 34,980 - $ 34,320
=$ 660 (F)
b. Material Y661:
Given,
Standard Price per Unit of Y661 = $ 1.50
Standard Quantity per Unit of Y661 = (2500*3.4) + (1400*5) = 8500 + 7000 = 15,500 Liters
Actual Price per Unit of Y661 = $ 23,660 / 16,900 Kilos = $ 1.4
Actual Quantity per Unit of Y661 for Price Variance = 16,900 Kilos
Actual Quantity per Unit of X442 for Usage Variance = 15,800 Kilos
Now, Calculation of Material Price Variance and Material Usage Variance:
Material Price Variance = (AQ*SP) - (AQ*AP)
=(16,900*1.50) - (16900*1.40)
=$ 25,350 - $ 23,660
= $ 1,690 (F)
Material Usage Variance = (SQ*SP) - (AQ*SP)
= (15,500*1.50) - (15,800*1.50)
= $ 23,250 - $ 23,700
=$ 450 (A)
2 . Calculation of Labour Variances:
a. Sintering:
Given,
Standard Rate per Hour = $ 22.00
Standard Hours = (2500*0.2) + (1400*0.25) = 500 + 350 = 850 Hours
Actual Rate per Hour = $ 31,720 / 1,300 Hours = $ 24.4
Actual Hours = 1,300 Hours
Now, Calculation of Labour Rate Variance and Efficiency Variance:
Labour Rate Variance = (AH*SR) - (AH*AR)
= (1300*22.00) - (1300*24.4)
= $ 28,600 - $ 31,720
= $ 3,120 (U)
Labour Efficiency Variance = (SH*SR) - (AH*SR)
=(850*22.00) - (1300*22.00)
= $ 18,700 - $ 28,600
= $ 9,900 (U)
b. Finishing:
Given,
Standard Rate per Hour = $ 20.50
Standard Hours = (2500*0.8) + (1400*0.9) = 2000 + 1260 = 3260 Hours
Actual Rate per Hour = $ 68,400 / 3,040 Hours = $ 22.5
Actual Hours = 3,040 Hours
Now, Calculation of Labour Rate Variance and Efficiency Variance:
Labour Rate Variance = (AH*SR) - (AH*AR)
= (3040*20.50) - (3040*22.5)
= $ 62,320 - $ 68,400
= $ 6,080 (U)
Labour Efficiency Variance = (SH*SR) - (AH*SR)
=(3260*20.50) - (3040*20.50)
= $ 66,830 - $ 62,320
= $ 4,510 (F)