Hector Company has developed the following standard costs for its product for 20

Question

Hector Company has developed the following standard costs for its product for 2012:

HECTOR COMPANY

Standard Cost Card

Product A

Cost Element...... Standard Quantity...... Standard Price .....= Standard Cost

Direct materials............ 4 pounds...................... $3........................ $12

Direct labor.................. 3 hours........................$ 8.........................$ 24

Actual results for 2012 are as follows:

? 26,000 units of Product A were produced.

? Actual direct labor costs were $630,800 for 76,000 direct labor hours worked.

? Actual direct materials purchased and used during the year cost $283,500 for 105,000 pounds.

? Instructions

Compute the following variances showing all computations to support your answers. Indicate whether the variances are favorable or unfavorable.

(a) Materials price variance.

(b) Material quantity variance.

(c) Direct labor price variance.

(d) Direct labor quantity variance.

Explanation / Answer

Hi,

Please find the answer as follows:

Direct Material Price Variance = Actual Quantity of Direct Material *(Actual Rate - Standard Rate) = 105000*(283500/105000 - 3) = 31500 (Favorable)

Direct Material Quantity Variance = Standard Rate*(Actual Quantity of Material Used - Standard Quantity) = 3*(105000 - 4*26000) = 3000 (Unfavorable)

Labor Price Variance = Actual Hours *(Actual Rate - Standard Rate) = 76000*(630800/76000 - 8) = 22800 (Unfavorable)

Labor Efficiency Variance = Standard Rate*(Actual Hours - Standard Hours) = 8*(76000 - 26000*3) = 16000 (favorable)

Thanks.

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