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 $20,995 for 3,230 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.

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.)

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.)

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 $20,995 for 3,230 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.

Explanation / Answer

Hi,

Please find the answer as follows:

Material Price Variance = Actual Quantity*(Actual Rate - Standard Rate) = 27600*(3.05 - 3.10) = 1380 (F)

Material Quantity Variance = Standard Rate*(Actual Quantity - Standard Quantity) = 3.10*(27600 - 1.75*15000) = 4185 (U)

Labor Rate Variance = Actual Hours*(Actual Rate - Standard Rate) = 3230*(20995/3230 - 5.95) = 1776.5 (U)

Labor Efficiency Variance = Standard Rate*(Actual Hours - Standard Hours) = 5.95*(3230 - .20*15000) = 1368.5 (U)

Thanks.

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