topaz company makes one product and has set the following standards for material

Question

topaz company makes one product and has set the following standards for materials and labor:

direct labor

during the past month, the company purchased 6,000 pounds of direct materials at a cost of $16,500. all of this material was used in the production of 1,400 units of product. direct labor cost totaled $28,500 for the month. the following variances have been computed:

$4,500 F

for direct labor:

a. compute the actual direct labor cost per hour for the month

b. compute the labor rate variance

direct materials

direct labor

standard quantity or hours per unit ? pounds 2.5 hours standard price or rate ? per pound $9.00 per hour standard cost per unit ? $22.50

Explanation / Answer

1.   a.   Materials price variance = AQ (AP – SP)
           6,000 pounds ($2.75 per pound* – SP) = $1,500 F**
           $16,500 – 6,000 pounds × SP = $1,500***
           6,000 pounds × SP = $18,000
           SP = $3.00 per pound

*   $16,500 ÷ 6,000 pounds = $2.75 per pound
**   $1,200 U + ? = $300 F; $1,200 U – $1,500 F = $300 F
***   When used with the formula, unfavorable variances are positive and favorable variances are negative.

       b.   Materials quantity variance = SP (AQ – SQ)
           $3.00 per pound (6,000 pounds – SQ) = $1,200 U
           $18,000 – $3.00 per pound × SQ = $1,200*
           $3.00 per pound × SQ = $16,800
           SQ = 5,600 pounds

*   When used with the formula, unfavorable variances are positive and favorable variances are negative.

c.   5,600 pounds ÷ 1,400 units = 4 pounds per unit.

Problem 10-13 (continued)
   2.   a.   Labor efficiency variance = SR (AH – SH)
           $9.00 per hour (AH – 3,500 hours*) = $4,500 F
           $9.00 per hour × AH – $31,500 = –$4,500**
           $9.00 per hour × AH = $27,000
           AH = 3,000 hours

   *   1,400 units × 2.5 hours per unit = 3,500 hours
   **   When used with the formula, unfavorable variances are positive and favorable variances are negative.

       b.   Labor rate variance = AH (AR – SR)
           3,000 hours ($9.50 per hour* – $9.00 per hour) = $1,500 U

  

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