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Sedona Company set the following standard costs for one unit of its product for 2017.

Direct material (15 Ibs. @ $4.20 per Ib.)		$	63.00
Direct labor (10 hrs. @ $6.40 per hr.)			64.00
Factory variable overhead (10 hrs. @ $3.70 per hr.)			37.00
Factory fixed overhead (10 hrs. @ $1.50 per hr.)			15.00
Standard cost		$	179.00

The $5.20 ($3.70 + $1.50) total overhead rate per direct labor hour is based on an expected operating level equal to 65% of the factory's capacity of 67,000 units per month. The following monthly flexible budget information is also available.

		Operating Levels (% of capacity)
Flexible Budget			60%				65%				70%
Budgeted output (units)			40,200				43,550				46,900
Budgeted labor (standard hours)			402,000				435,500				469,000
Budgeted overhead (dollars)
Variable overhead		$	1,487,400			$	1,611,350			$	1,735,300
Fixed overhead			653,250				653,250				653,250
Total overhead		$	2,140,650			$	2,264,600			$	2,388,550

During the current month, the company operated at 60% of capacity, employees worked 382,000 hours, and the following actual overhead costs were incurred.

Variable overhead costs		$	1,425,000
Fixed overhead costs			725,250
Total overhead costs		$	2,150,250

AH = Actual Hours
SH = Standard Hours
AVR = Actual Variable Rate
SVR = Standard Variable Rate
SFR = Standard Fixed Rate

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

Direct materials (15 lbs. @ $4 per lb.)			$60
Direct labor (3 hrs. @ $15 per hr.)			45

During June the company incurred the following actual costs to produce 8,800 units.

Direct materials (134,800 lbs. @ $3.75 per lb.)		$	505,500
Direct labor (31,100 hrs. @ $15.20 per hr.).			472,720

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

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

(1) Compute the direct materials price and quantity variances.
(2) Compute the direct labor rate variance and the direct labor efficiency variance. Indicate whether each variance is favorable or unfavorable.

Answer 1

solution 1:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
134800	$3.75	$505,500.00			134800	$4.20	$566,160.00			132000	$4.20	$554,400.00
			$60,660.00	F				$11,760.00	U
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$60,660.00	F
Direct material quantity variance					$11,760.00	U
Direct material cost variance					$48,900.00	U

Solution 2:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
31100	$15.20	$472,720.00			31100	$6.40	$199,040.00			88000	$6.40	$563,200.00
			$273,680.00	U				$364,160.00	F
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$273,680.00	U
Direct Labor Efficiency variance					$364,160.00	F
Direct labor cost variance					$90,480.00	F