Question

The following describes production activities of Mercer Manufacturing for the year.

Actual direct materials used	30,000 lbs. at $5.15 per lb.
Actual direct labor used	9,150 hours for a total of $186,660
Actual units produced	54,120

Budgeted standards for each unit produced are 0.50 pound of direct material at $5.10 per pound and 10 minutes of direct labor at $21.40 per hour.

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 and classify each as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance. Round "Cost per unit" answers to 2 decimal places.)
(2) Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)

Answer 1

Compute direct material price and quantity variances

Direct material price variances = (standard price - actual price)× actual material used

=($5.10 - $5.15) ×30000 = $1500(unfavorable)

Direct material quantity variances = (standard quantity - actual quantity)× standard price

(54120×0.50) - 30000 × $5.10 = $14994 (unfavorable)

Compute labour rate variances and labour efficiency variances

labour rate variances = (standard rate - actual rate)×actual hours

= ($21.40 - ($186660/9150)× 9150

= ($21.40 - $20 .4) × 9150 = $9150(favourable)

Labour efficiency variances = (standard hours - actual hours)× standard rate

=(54120×1/6) - 9150)× $21.40

= (9020 - 9150)× $21.40 = $2782(unfavorable)

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