Question

The following information describes production activities of Mercer Manufacturing for the year. Actual direct materials used 33,000 lbs. at $5.90 per lb. Actual direct labor used 10,700 hours for a total of $221,490 Actual units produced 63,000 Budgeted standards for each unit produced are 0.50 pounds of direct material at $5.85 per pound and 10 minutes of direct labor at $21.70 per hour. 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 and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Answer 1

(1)

Direct materials price variance = Actual quantity * (Standard price - Actual price)

= 33,000 * ($5.85 - $5.90)

= $1,650 Unfavourable

Direct materials quantity variance = Standard price * (Standard quantity - Actual quantity)

= $5.85 - [(63,000*0.50) - 33,000]

= $8,775 Unfavourable

(2)

Direct labour rate variance = Actual hours * (Standard rate - Actual rate)

= 10,700 * [$21.70 - ($221,490/10,700)]

= $10,700 Favourable

Direct labour efficiency variance = Standard rate * (Standard hours - Actual hours)

= $21.7 * [(63,000*10/60) - 10,700]

= $4,340 Unfavourable