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 26,700 yards of fabric costing $3.05 per yard and incurring direct labor costs of $19,778 for 3,190 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.

b. Compute both the rate variance and efficiency variance for direct labor costs incurred in manufacturing pillowcases in May.

Explanation / Answer

Material Price variance = (SP - AP) AQ = ($3.10 - $3.05) x 26700 yards = 1335 Favorable

Material quantity variance = (SQ-AQ)SP = (1.75 x 15000 - 26700) x $3.10 = - 1395 Unfavorable

Labor Rate variance = (SR - AR) AH = ($5.95 - $19778/3190) 3190 = -797.5 -- Unfavorable

Labor Efficiency Variance = (SH - AH)SR = (0.20 x 15000 - 3190) x $5.95 = - 1130.5 unfavorable

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