Question

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.
  

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