Question

Exercise 21-12 Direct materials and direct labor variances LO P2

Reed Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.

Direct materials (15 lbs. @ $3 per lb.)			$45
Direct labor (3 hrs. @ $14.00 per hr.)			42

During June the company incurred the following actual costs to produce 8,500 units.

Direct materials (130,400 lbs. @ $2.75 per lb.)		$	358,600
Direct labor (29,900 hrs. @ $14.15 per hr.).			423,085

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 variance and the direct labor efficiency variance. Indicate whether each variance is favorable or unfavorable.

Complete this question by entering your answers in the tabs below.

Answer 1

1.Direct material price variance = (Standard Price – Actual Price)*Actual Quantity

= (3-2.75)*130,400

= 32,600 Favorable

Direct Material Quantity Variance = (Standard Quantity – Actual Quantity)*Standard Price

= (8,500*15 – 130,400)*3

= $8,700 Unfavorable

2.Direct Labor Rate Variance = (Standard Rate – Actual Rate)*Actual Hours

= (14-14.15)*29,900

= $4,485 Unfavorable

Direct Labor Efficiency Variance = (Standard Hours – Actual Hours)*Standard Rate

= (8,500*3 – 29,900)*14

= $61,600 Unfavorable