Question

Exercise 8-15 Direct materials and direct labor variances LO P2 The following information describes production activities...

Exercise 8-15 Direct materials and direct labor variances LO P2

The following information describes production activities of Mercer Manufacturing for the year.

Actual direct materials used 29,000 lbs. at $5.10 per lb.
Actual direct labor used 8,100 hours for a total of $164,430
Actual units produced 48,000


Budgeted standards for each unit produced are 0.50 pounds of direct material at $5.05 per pound and 10 minutes of direct labor at $22.00 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.
  

Homework Answers

Answer #1
Material Price Variance= Actual Qty (Std price - Actual price)
29000 (5.05-5.10) = $ 1450 Unfavorable
Material Quantity: Std Price (Std Quantity -Actual Quantity)
5.05 (24000-29000)= $ 25250 Unfavorbale
Std Labouor hours for actual output (48,000 units @ 1/6 hr): 8000 hours
Std rate per hour: $ 22 per hour
Actual hours: 8100 hours
Actual rate per hour (164430/8100): $ 20.30 per hour

Labour rate variance = Actual Hours (Std rate-Actual Rate) = 8100 (22-20.30) 13770 fav

Labour efficiency Variance= Std rate (Std hours-Actual hours) = 22 (8000-8100) = 2200 unfav

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