E9-1 Calculating Unknown Values for Direct Materials, Direct Labor Variances LO

Question

E9-1 Calculating Unknown Values for Direct Materials, Direct Labor Variances LO 9-3, 9-4] Ironwood Company manufactures cast-iron barbeque cookware. During a recent windstorm, it lost some of its cost accounting records. Ironwood has managed to reconstruct portions of its standard price (rate) system database but is still missing a few pieces of information. Required Use the information in the table to determine the unknown amounts. You may assume that Ironwood does not keep any raw materials on hand. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.) Direct Materials Direct Labor 1.10 hr 2.5 lb. Standard amount per pan produced Standard price (rate) Actual amount used per pan produced Actual price (rate) Actual number of pans produced and sold Direct materials price variance Direct materials quantity variance Direct materials spending variance Direct labor rate variance Direct labor efficiency variance Direct labor spending variance 4.20 per lb. $16.00 per hr 2.4 lb. 1.20 hr $4.10 per lb.$15.50 per hr 2,500 pans 2,500 pans

Explanation / Answer

Solution:

Standard quantity for actual production = 2500 * 2.50 = 6250 lb

Standard price of material = $4.20 per lb.

Actual quantity of material = 2500 * 2.4 = 6000 lb

Actual price of material = $4.10 per lb

Direct material price variance = (SP - AP) * AQ = ($4.20 - $4.10) * 6000 = $600 F

Direct materials quantity variance = (SQ - AQ) * SP = (6250 - 6000) * $4.20 = $1,050 F

Direct material spending variance = Direct material price variance + Direct material quantity variance

= $600 F + $1050 F = $1,650 F

Standard labor hours for actual prodcution = 2500 * 1.10 = 2750 hours

Standard rate of labor = $16 per hour

Actual labor hours = 2500 * 1.20 = 3000 hours

Actual rate of labor = $15.50 per hour

Direct labor rate variance = (SR - AR)* AH = ($16 - $15.50) * 3000 = $1,500 F

Direct labor efficiency variance = (SH - AH) * SR = (2750 - 3000) * $16 = $4,000 U

Direct labor spending variance = Direct labor rate variance + Direct labor efficiency variance

= $1,500 F + $4,000 U = $2,500 U

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