Question

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing....

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 1.5 kilos 2.2 liters 0.40 hours 0.80 hours Zeta7 3.5 kilos 4.4 liters 0.30 hours 0.90 hours Information relating to materials purchased and materials used in production during May follows: Material Purchases Purchase Cost Standard Price Used in Production X442 14,100 kilos $53,580 $3.60 per kilo 8,600 kilos Y661 15,100 liters $21,140 $1.50 per liter 13,100 liters The following additional information is available: The company recognizes price variances when materials are purchased. The standard labor rate is $18.00 per hour in Sintering and $18.00 per hour in Finishing. During May, 1,250 direct labor-hours were worked in Sintering at a total labor cost of $28,250, and 2,860 direct labor-hours were worked in Finishing at a total labor cost of $57,200. Production during May was 1,600 Alpha6s and 1,800 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.

Homework Answers

Answer #1

Data Given:

Sr. No. Particulars Alpha6s Zeta7s
1 Raw Materials used X442 and Y661 X442 and Y661
2 Standard Raw Material Required Per Unit (X442) 1.5 kilo (standard price is $3.60 per kilo) 3.5 kilo (standard price is $3.60 per kilo)
3 Standard Raw Material Required Per Unit (Y661) 2.2 litre (standard price is $1.50 per liter) 4.4 litre (standard price is $1.50 per liter)
4 Standard Labor Time and rate Per Unit (Sintering Process) 0.4 hrs at $18.00 per hour 0.3 hrs at $18.00 per hour in Finishing
5 Standard Labor Time and rate Per Unit (Finishing Process) 0.8 hrs at $18.00 per hour in Finishing 0.9 hrs at $18.00 per hour in Finishing
6 Material Purchased In May (actual) (X442)

14,100 kilos for $53,580

[i.e. actual price is $3.8 per kg (53580 /14100)]

7 Material used in May (X442) 8600 kgs.
8 Material Purchased In May (actual) (Y661)

15,100 liters $21,140

[i.e. actual price is $1.4 per liter (21140 /15100)]

9 Material used in May (Y661) 13100 liter
10 Actual labor hours and cost in May (Sintering Process) 1,250 direct labor-hours at a total labor cost of $28,250 [i.e. actual labor rate is $ 22.6 per hour]
11 Actual labor hours and cost in May (Finishing Process) 2,860 direct labor-hours at a total labor cost of $57,200 [i.e. actual labor rate is $ 20 per hour]
12 Production in May 1600 1800

Note : Please note that the data in question posted is in a paragraph. Hence, above data is tabulated based on assumption that data is provided in order of words describing them.

Required:

1. Standard cost card for each product

Based on data available standard cost for product Alpha 6s can be worked out as under:-

Sr. No. Particulars Standard Cost per unit (Amount in $)
I Standard Raw Material cost:
X442 [1.5 kilo * $3.60 per kilo] 5.4
Y661 [2.2 ltr * $1.5 per ltr] 3.3
Total 8.7 8.7
II Standard Labour Cost
Sintering Process [0.4 hrs * $18.00 per hour] 7.2
Finishing Process - 0.8 hrs * $18.00 per hour] 14.4
Total 21.6 21.6
III Total Standard Cost for each unit of Alpha 6s 30.3

Based on data available standard cost for product Zeta7s can be worked out as under:-

Sr. No. Particulars Standard Cost per unit (Amount in $)
I Standard Raw Material cost:
X442 [3.5 kilo * $3.60 per kilo] 12.6
Y661 [4.4 ltr * $1.5 per ltr]

6.6

Total 19.2 19.2
II Standard Labour Cost
Sintering Process [0.3 hrs * $18.00 per hour] 5.4
Finishing Process - 0.9 hrs * $18.00 per hour] 16.2
Total 21.6 21.6
III Total Standard Cost for each unit of Zeta7s 40.8

2. Material Price and quantity Variances:

Sr. No. Particulars X442 Y661
1 Material Price Variance [Actual Qty. Used (Actual Price - Standard Price)]

1720 Adverse

[8600 (3.8-3.6)]

1310 Favourable

[1300(1.4-1.5)]

2

Quantity Variance [ Standard Price (Actual Qty. Used - Standard Qty. Required)]

Actual Qty. = (Actual Production / Actual Material Used)

360 Favourable

[3.6 *{8600-[(1600*1.5)+(1800*3.5)}]

2490 Adverse

[1.5 * {13100 -(1600*2.2)+(1800*4.4)}]

3. Labour Rate and Efficiency Variance

Sr. No. Particulars Sintering Finishing
1

Labour Rate Variance [Actual Lab. Hrs Used (Actual Rate - Standard Rate)]

Actual Labour Hrs = Actual Production * Standard Labour Hrs

5428 Adverse

[{(1600*0.4)+(1800*0.3)}*(22.6-18)]

5800 Adverse

[{(1600*0.8)+(1800*0.9)}*(20-18)]

2

Labour Efficiency Variance [ Standard Rate (Actual Labour Hrs - Standard Labour Hrs)]

1260 Adverse

[18 {1250-{(1600*0.4)+(1800*0.3)}

720Favorable

[18{2860-{(1600*0.8)+(1800*0.9)}}

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