33. Harrisburg Company has set the following standards for one unit of its produ

Question

33.             Harrisburg Company has set the following standards for one unit of its product:

Direct Material       $36 per unit

       Quantity =  4 pounds per unit

       Price =        $9 per pound

Direct Labor          $63 per unit

       Hours   =     3 hours per unit

       Rate =         $21 per hour

Actual costs incurred in the production of 2,000 units were as follows:

       Direct Material:    $72,540   ($9.30 per pound)

       Direct Labor:      $120,840   ($21.20 per hour)

All materials purchased were used during the period.

REQUIRED:  Compute the direct material price and quantity variances and the direct labor rate     and efficiency variances.  Indicate whether each variance is favorable or unfavorable.   Use computations or goalpost format to show variances.

Explanation / Answer

Hi,

Please find the answer as follows:

Direct Material Price Variance = Actual Quantity *(Actual Rate - Standard Rate) = 72540/9.3*(9.3 - 9) = 2340 (U)

Direct Material Quantity Variance = Standard Rate*(Actual Quantity - Standard Quantity) = 9*(72540/9.3 - 2000*4) = 1800 (F)

Labor Rate Variance = Actual Hours *(Actual Rate - Standard Rate) = 120840/21.20*(21.20 - 21) = 1140 (F)

Labor Efficiency Variance = Standard Rate*(Actual Hours - Standard Hours) = 21*(120840/21.20 - 2000*3) = 6300 (F)

F represents Favorable

U represents Unfavorable

Thanks.

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