Question

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials—X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis):

	Raw Material			Standard Labor Time
Product	X442	Y661		Sintering	Finishing
Alpha6	2.0 kilos	3.0 liters		0.20 hours	0.90 hours
Zeta7	5.0 kilos	4.0 liters		0.40 hours	1.00 hours

Information relating to materials purchased and materials used in production during May follows:

Material	Purchases		Purchase Cost	Standard Price		Used in Production
X442	15,500	kilos	$48,050	$2.90	per kilo	10,000	kilos
Y661	16,500	liters	$29,700	$1.90	per liter	14,500	liters

The following additional information is available:

The company recognizes price variances when materials are purchased.

The standard labor rate is $22.00 per hour in Sintering and $20.50 per hour in Finishing.

During May, 1,320 direct labor-hours were worked in Sintering at a total labor cost of $31,680, and 3,000 direct labor-hours were worked in Finishing at a total labor cost of $67,500.

Production during May was 2,100 Alpha6s and 1,220 Zeta7s.

Required:

1. Complete the standard cost card for each product, showing the standard cost of direct materials and direct labor.

2. Compute the materials price and quantity variances for each material.

3. Compute the labor rate and efficiency variances for each operation.

Answer 1

1.

	Standard Quantity or Hours		Standard Price or Rate		Standard Cost
Alpha6
Direct material X442	2	kilos	$2.90	per kilos	$5.80
Direct material Y661	3	liters	$1.90	per liters	$5.70
Direct labor- Sintering	0.2	hours	$22	per hours	$4.40
Direct labor- Finishing	0.9	hours	$20.50	per hours	$18.45
Total					$34.35

	Standard Quantity or Hours		Standard Price or Rate		Standard Cost
Zeta7
Direct material X442	5	kilos	$2.90	per kilos	$14.50
Direct material Y661	4	liters	$1.90	per liters	$7.60
Direct labor- Sintering	0.4	hours	$22	per hours	$8.80
Direct labor- Finishing	1	hours	$20.50	per hours	$20.50
Total					$51.40

2.

Actual price for X442 = Total purchased cost /actual quantity purchased

                      = $ 48,050/15,500 = $ 3.10

Material price variance for X442 = (Actual price – standard price) x Actual quantity

                                          = ($ 3.10 - $ 2.90) x 15,500 = 3,100   U

Actual price for Y661 = Total purchased cost /actual quantity purchased

                      = $ 29,700/16,500 = $ 1.80

Material price variance for Y661 = (Actual price – standard price) x Actual quantity

                                          = ($ 1.80 - $ 1.90) x 16,500 = - $ 0.1 x 16,500 = -$ 1,650   F

Material quantity variance for X442 = (Actual Quantity – Standard Quantity) x Standard Price

                                                                = (15,500 – 2 x 2,100 + 1,220 x 5) x $ 2.9

                                                                 = (15,500 – 4,200 + 6,100) x $ 2.9

                                                                 = (15,500 – 10,300) x $ 2.9 = 5,200 x $ 2.9 = $ 15,080    U

Material quantity variance for Y661 = (Actual Quantity – Standard Quantity) x Standard Price

                                                                = (16,500 – 3 x 2,100 + 1,220 x 4) x $ 1.90

                                                                 = (16,500 – 6,300 + 4,880) x $ 1.9

                                                                 = (16,500 – 11,180) x $ 1.9 = 5,320 x $ 2.9 = $ 10,108 U

3.

Actual rate for Sintering = $ 31,680/ 1,320 = $ 24

Direct labor rate Variance for Sintering = (Actual rate - Standard rate) × Actual hour

                                                                = ($ 24 - $ 22) x 1,320 = $ 2 x 1,320 = $ 2,640 U

Actual rate for Finishing = $ 67,500/ 3,000 = $ 22.50

Direct labor rate Variance for Finishing = (Actual rate - Standard rate) × Actual hour

                                                                = ($ 22.50 - $ 20.50) x 3,000 = $ 2 x 3,000 = $ 6,000 U

Standard hours for Sintering = 0.2 x 2,100 + 0.4 x 1,220 = 420 + 488 = 908 hrs

Direct labor efficiency Variance for Sintering = (Actual hours - Standard hours) x Standard rate

                                                                         = (1,320 – 908) x $ 22 = 412 x $ 22 = $ 9,064 U

Standard hours for Finishing = 0.9 x 2,100 + 1 x 1,220 = 1,890 + 1,220 = 3,110 hrs

Direct labor efficiency Variance for Finishing = (Actual hours - Standard hours) x Standard rate

                                                                         = (3,000 – 3,110) x $ 20.50 = - 110 x $ 20.50 = - $ 2,255 F