Exercise 8-15 Direct materials and direct labor variances LO P2 The following in

Question

Exercise 8-15 Direct materials and direct labor variances LO P2 The following information describes production activities of Mercer Manufacturing for the year. Actual direct materials used 28,000 ibs. at $4.98 per ib. Actual direct labor used Actual units produced 8,650 hours for a total of $174,738 51,600 Budgeted standards for each unit produced are 0.50 pounds of direct material at $4.85 per pound and 10 minutes of direct labor at $21.20 per hour AQ Actual Quantity SQ Standard Quantity AP Actual Price SP Standard Price AH-Actual Hours SH Standard Hours AR Actual Rate SR Standard Rate (1) Compute the direct materials price and quantity variances (2) Compute the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable

Explanation / Answer

1) Material Price Variance = (Standard Price-Actual Price)*Actual Materiial quantity used = (4.85-4.90)*28000 = $ 1,400 Unfavorable Material Quantity Variance = (Standard quantity-Actual quantity)*Standard Price = (25800-28000)*4.85 = $           10,670 Unfavorable Working: Standard Quantity = Actual Output*Standard Quantity per unit = 51600 * 0.5 = 25800 2) Labor rate Variance = (Standard Rate-Actual rate)*Actual labor hours used = (21.20-20.20)*8650 = $             8,650 Favorable Working: Actual Labor rate = Actual Labor cost/Actual Labor hours = $       1,74,730 / 8650 = $             20.20 Labor efficiency Variance = (Standard Labor hours-Actual Labor hours)*Standard Labor rate = (8600-8650)*21.2 = $             1,060 Unfavorable Working: Standard Labor hours = Actual Output*Standard Labor hours per unit = 51600 * 1/6 = 8600

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