Question

Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below:

	Standard Quantity or Hours		Standard Price or Rate			Standard Cost
Direct materials	7.90	pounds	$	2.10	per pound	$	16.59
Direct labor	0.50	hours	$	5.00	per hour	$	2.50

During the most recent month, the following activity was recorded:

1. 14,850.00 pounds of material were purchased at a cost of $2.00 per pound.

2. All of the material purchased was used to produce 1,500 units of Zoom.

3. 600 hours of direct labor time were recorded at a total labor cost of $4,200.

Required:

1. Compute the materials price and quantity variances for the month.

2. Compute the labor rate and efficiency variances for the month.

(For all requirements, Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Round your intermediate calculations to the nearest whole dollar.)

Answer 1

1)

Material Price Variance = (SP - AP)AQ

= (Standard price per pound - actual price per pound) x Actual quantity

= ($2.10 - $2) x 14850 pounds

= $1485 F

Material Quantity Variance= (SQ- AQ)SP

= (Standard quantity for actual production - actual quantity used) x Standard price per pound

= (7.90 x 1500 - 14850) x $2.10

(11850-14850)x $2.10

= $6300 U

2)

Actual Labour Rate per hour = $4200/ 600 hours = $7 per hour

Labour rate Variance = (SR- AR)AH

= (Standard labour rate per hour - actual labour rate per hour) x actual hours used in production

= ($5 - $7) x 600

= $1200 U

Standard hour required for actual production = 1500 x 0.5 = 750 hours

Labour Efficiency Variance =(SH-AH)SR

= (Standard hour required for actual production - Actual hours used) x Standard labour rate per hour

= (750 - 600) x $5

= $750 F