Question

Exercise 21-11 Direct materials and direct labor variances LO P2 Hutto Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures. Direct materials (14 lbs. @ $4 per lb.) $56 Direct labor (2 hrs. @ $15 per hr.) 30 During May the company incurred the following actual costs to produce 8,100 units. Direct materials (116,100 lbs. @ $3.80 per lb.) $ 441,180 Direct labor (19,700 hrs. @ $15.10 per hr.). 297,470 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

1)Material price variance = AQ (SR-AR)

116,100 ($4-$3.80)

=$23,220 F (as the actual rate is lower than standard rate the variance is favorable)

2)material quantity variance

SR (SQ-AQ)

=$4 [(14lbs*8,100 units)-116,100 lbs]

=$10,800 U

3)

labor rate variance

=Actual Hours (SR-AR)

= 19,700 *$15 per hour-$297,470

=$1,970 U (as the actual labor cost is higher than standard cost the variance is unfavorable)

Labor efficiency variance

=SR (SH-AH)

=$15 [(8100 units*2hours per unit)-19,700]

=$15*3,500

=$52,500 U