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 27,400 yards of fabric costing $3.05 per yard and incurring direct labor costs of $18,582 for 3,260 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 $ 1370 F

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 $ 815 F

Labor efficiency variance $ ?

Explanation / Answer

(a)
Standard Quantity at Standard Price (SQSP) = 15000 x 1.75 x 3.1 = $81375
Actual Quantity at Standard Price (AQSP) = 27800 x 3.1 = $86180
Actual Quantity at Actual Price (AQAP) = 27800 x 3.05 = $84790

Material Price Variance = AQSP - AQAP = 86180 - 84790 = $1390 F
Material Quantity Variance = SQSP - AQSP = 81375 - 86180 = $4805 U

(b)
Standard Hour at Standard Rate (SHSR) = 15000 x 0.2 x 5.95 = $17850
Actual Hour at Standard Rate (AHSR) = 3110 x 5.95 = $18504.50
Actual Hour at Actual Rate (AHAR) = $16794

Labour rate variance = AHSR - AHAR = 18504.5 - 16794 = $1710.5 F
Labour efficiency variance = SHSR - AHSR = 17850 - 18504.50 = $654.5 U

Hope this helps!

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