Question

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 or Rate			Standard Cost
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:

1. 19,250.00 pounds of material were purchased at a cost of $2.40 per pound.

2. All of the material purchased was used to produce 2,500 units of Zoom.

3. 450 hours of direct labor time were recorded at a total labor cost of $4,500.

Required:

1. Compute the materials price and quantity variances for the month.

2. Compute the labor rate and efficiency variances for the month.

Answer 1

Ans:

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

2)

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.