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 27,000 yards of fabric costing $3.05 per yard and incurring direct labor costs of $19,140 for 3,300 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 = Actual quantity(standard price-actual price) =27,000x ($3.10 - $3.05) = $1,350Favorable Material Qty Variance =standard price(standard quantity-actualquantity) =$3.10 x (15000*1.75- 27,000) = $2,325 Unfavorable Labor Rate Variance = Actual hours worked(Actual rate-standard rate) =3,300x ($5.95 - $6.10) = $465Unfavorable Labor Efficiency Variance = Actual rate(standard hours-actual hours) =$5.95 x (15000*0.2 - 3,300) = $1785Unfavorable

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