Question

In: Accounting

Exercise 08-12 Direct materials and direct labor variances LO P3 Reed Corp. has set the following...

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.)

Solutions

Expert Solution

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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