Nolan Mills uses a standard cost system. During May, Nolan manufactured 15,000 p

Question

Nolan Mills uses a standard cost system. During May, Nolan manufactured 15,000 pillowcases, using 27,600 yards of fabric costing $3.05 per yard and incurring direct labor costs of $16,218 for 3,180 hours of direct labor. The standard cost per pillowcase assumes 1.75 yards of fabric at $3.10 per yard, and 0.20 hours of direct labor at $5.95 per hour.

a.

Compute both the price variance and quantity variance relating to direct materials used in the manufacture of pillowcases in May. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)


Materials price variance $
Materials quantity variance $

b.

Compute both the rate variance and efficiency variance for direct labor costs incurred in manufacturing pillowcases in May. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Round your answers to 2 decimal places. Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)


Labor rate variance $
Labor efficiency variance $

Explanation / Answer

a. Materials price variance = AQ(AP-SP) = 27,600*(3.05 - 3.10) = -1380, which is 1380 favorable Materials quantity variance = SP(AQ-SQ) = 3.10*(27,600 - 15000*1.75) = 3.10*(27600 - 26250) = 4185, which is 4185 unfavorable b. Labor rate variance = AH(AR-SR) = 3180(16218/3180 - 5.95) = 3180(5.10 - 5.95) = -2703 which is 2703 favorable Labor efficiency variance = SR(AH-SH) = 5.95*(3180 - 15000*.2) = 5.95*(3180 - 3000) = 1071, which is 1071 unfavorable

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