Question

I need a step by step explanation to problem 14-26 in order to make me understand the solution:

14-26 Direct Materials and Direct Labor Variance

Schmidt Machinery Company used 3,450 pounds of aluminum in June to manufacture 920 units. The company paid $28.50 per pound during the month to purchase aluminum. On June 1, the company had 50 pounds of aluminum on hand. At the end of June, the company had only 30 pounds of aluminum in its warehouse. Schmidt used 4,200 direct labor hours in June, at an average cost of $41.40 per hour.

Required: Compute for June

Schmidt’s purchase-price and usage variances for aluminum.

Schmidt’s direct labor rate and efficiency variances.

Standard Cost Sheet

SCHMIDT MACHINERY COMPANY Standard Cost Sheet Product: XV1
Descriptions:	Quantity	Unit Cost	Subtotal	Total
Direct materials:
Aluminum	4 pounds	$25	$100
PVC	1 pound	40	40
Direct Labor	5 hours	40	200
Variable factory overhead	5 hours	12	60
Total variable manufacturing cost				400
Fixed factory overhead*	5 hours	24	120	120
Standard manufacturing cost per unit				$520
Standard variable selling and administrative expensive per unit				$50

Answer 1

Solution:

Purchase price and usage variances for Aluminum:

Standard Price ofAluminum (SP) = $25

Actual Price of Aluminum (AP) = $28.50

Standard Quantity of Aluminum for 920 units (SQ) = 920* 4 pounds = 3680 pounds

Actual Quantity of aluminum consumed (AQ)= 3450 pounds

Actual quantity of Aluminum purchased = Quantity consumed + closing Inventory of aluminum - opening inventory of aluminum = 3450 +30-50 = 3430 pounds

Price Variance for Aluminum = (SP-AP)*Actual Quantity Purchased = ($25-$28.50)*3430 = $12,005 Unfavouable

Usage Variance For Aluminum = (SQ-AQ)*SP = (3680-3450)*25 = $5,750