Question

Villa Enterprises recently experienced a fire, forcing the company to use incomplete information to analyze operations. Consider the following data and assume that all materials purchased during the period were used in production:

                        Direct materials:

                                Standard price per pound: $9

                                Actual price per pound: $8

                                Price variance: $20,000F

                                Total of direct-material variances: $2,000F

                        Direct labor:

                                Actual hours worked: 40,000

                                Actual rate per hour: $15

                                Efficiency variance: $28,000F

                                Total of direct-labor variances: $12,000U

                        Hermosa completed 12,000 units.

               

                Required: Determine the following: (1) actual materials used, (2) materials quantity variance, (3) labor rate variance, (4) standard labor rate per hour, and (5) standard labor time per finished unit.

Answer 1

1. Material price variance = (Standard price - Actual price)*actual materials used

20000 = (9-8)*Actual materials used

Actual materials used = 20000 pound

2. Material quantity variance = Total direct material variance - Material price variance

= 2000 - 20000 = $18000 unfavorable

3. Labor rate variance = Total direct labor variance - efficiency variance

= -12000-28000 = $40000 Unfavorable

4. Labor rate variance = (standard rate per hour - actual rate)*actual hours

-40000 = (standard rate per hour - 15)*40000

Standard rate per hour = $14 per hour

5. Labor efficiency variance = (actual units* Standard labor hour per unit - actual hours)*standard rate

28000 = (12000*standard labor hour per unit - 40000)*14

Standard labor hour per unit = 3.5 hour