Question

Exercise 08-12 Direct materials and direct labor variances LO P3

Reed Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.

Direct materials (16 lbs. @ $3 per lb.)			$48
Direct labor (2 hrs. @ $15 per hr.)			30

During June the company incurred the following actual costs to produce 8,400 units.

Direct materials (137,300 lbs. @ $2.80 per lb.)		$	384,440
Direct labor (20,600 hrs. @ $15.15 per hr.).			312,090

AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

(1) Compute the direct materials price and quantity variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)
(2) Compute the direct labor rate variance and the direct labor efficiency variance. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)

Answer 1

Material Variances

WORKING NOTES:

Actual output =

8400

Standard Cost Per Unit

Standard Cost for Actual Output

Actual Cost

Standard Quantity

SP

Standard Cost

Standard Quantity

SP

Standard Cost

Actual Quantity

AP

Actual Cost

16.00

$               3.00

$                     48.00

134400

$       3.00

$                 403,200

137300

$         2.80

$                 384,440

Lbs

(8400 X 16)

SOLUTION : 1(1)

Direct Material price Variance = (

Standard Price

-

Actual Price

) "X"

Actual Quantity

Direct Material price Variance = (

$                        3.00

-

$                           2.80

) "X"

137300

Direct Material price Variance =

$                        0.20

"X"

137300

Direct Material price Variance =

$                   27,460

Favourable

SOLUTION : 1(2)

Material Quantity Variance = (

Actual Quantity

-

Standard Quantity

) "X"

Standard Cost per unit

Material Quantity Variance = (

137,300

-

134,400

) "X"

$                        3.00

Material Quantity Variance =

2,900

"X"

$                           3.00

Material Quantity Variance =

$                     8,700

Unfavourable

Answer =

Direct Material price Variance =

27,460

Favourable

Direct Material Quantity Variance =

8,700

Unfavourable

Labour Variances

Standard Cost Per unit

Standard Cost for Actual Production

Actual Units =

8400

Standard Time

Std. Rate

Total Cost

Standard Time

Std. Rate

Total Std. Cost

Actual Time

Act. Rate

Actual Cost

2.00

$             15.00

$                     30.00

16800

$     15.00

$                 252,000

20600

$      15.15

$                 312,090

Hours

Per Hours

(2 Hrs X 8400)

Per Hours

Hrs.

Per Hours

SOLUTION : 2 (1)

Labour Rate Variance =                 (           Actual Rate        ' -'         Standard Rate     ) X                   Actual Hours

Labour Rate Variance =                 (

$                     15.15

'-'

$                         15.00

) X

20,600

Labour Rate Variance =

$                        0.15

X

20,600

Labour Rate Variance =

3090

Unfavorable

SOLUTION : 2(2)

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