Hughes Corporation recently implemented a standard cost system. The company\'s C

Question

Hughes Corporation recently implemented a standard cost system. The company's Cost accountant has provided the following data to preform a variance analysis for May:

Standard
Direct Materials $20 per pound
Standard Quantity per unit 8 pounds per unit
Direct labor Standard rate $12 per unit
Standard hours per unit .5 hours per unit

Actual
Cost of materials purchased and used $1,211,250
Pounds of Material Purchased and used 63,750 pounds
Cost of direct labor $37,400
Hours of direct labor 3,400 hours
Actual volume of production 8,500 units

**Please compute the following variances:

1. Materials price variance $__________ Favorable or unfavorable?
2. Materials quantity variance $_________ Favorable or unfavorable
3. Labor rate variance $____________ favorable or unfavorable
4. Labor efficiency variance $_________ favorable or unfavorable

The above blanks can be correctly filled in with the following numbers (obviously not in this order) $10,200, $3,400, $85,000 and $63,750.

Explanation / Answer

Actual price of materials = 1,211,250/63,750 = $19 Actual labor rate = 37,400/3400 = $11 1. Materials price variance = AQ(AP-SP) = 63,750*($19-$20) = -63,750, which is 63,750 favorable 2. Materials quantity variance = SP(AQ-SQ) = 20*(63,750 – 8500*8) = -85,000, which is 85,000 favorable 3. Labor rate variance = AH(AR-SR) = 3,400(11-12) = -3,400 which is 3400 favorable 4. Labor efficiency variance = SR(AH-SH) = 12(3400 – 8500*.5) = -10200 which is 10200 favorable

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