Exercise 10-6 Direct Materials and Direct Labor Variances [LO10-1, LO10-2]
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
|Direct materials||6.90||pounds||$||2.60||per pound||$||17.94|
|Direct labor||0.30||hours||$||7.00||per hour||$||2.10|
During the most recent month, the following activity was recorded:
19,250.00 pounds of material were purchased at a cost of $2.40 per pound.
All of the material purchased was used to produce 2,500 units of Zoom.
450 hours of direct labor time were recorded at a total labor cost of $4,500.
1. Compute the materials price and quantity variances for the month.
2. Compute the labor rate and efficiency variances for the month.
Direct material Price variance
= (Actual price - Standard price) x Actual quantity purchased
= ($2.40 per pound - $2.60 per pound) x 19250 pound
= $3850 Favourable
Standard usage for actual production
= 2500 unit x 6.90 pounds per unit
= 17250 pound
Direct material quantity variance
= (actual quantity used - standard quantity) x Standard price
= (19250 - 17250) pounds x $2.60 per pound
= $5200 Unfavourable
Labour Rate variance
= (Actual rate - Standard rate) x actual hours used
= ($4500/450 hours - $7/hour) x 450 hours
= ($10/hour - $7 / hour) x 45 hours
= $1350 Unfavourable
Standard hours allowed fopr actual production
= 2500 unis x 0.30 hours per unit
= 750 hours
Labour Efficiency variance
= (actual hours used - standard hours allowed) x Standard rate
= (450 hours - 750 hours) x $7/hour
= $2100 Favourable
Hope this helped ! Let me know in case of any queries.
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