Problem 23-2A (Part Level Submission) Costs and Production Data Actual Standard

Question

Problem 23-2A (Part Level Submission)

Costs and Production Data

Actual

Standard

(a)

Problem 23-2A (Part Level Submission)

Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2017.

Costs and Production Data

Actual

Standard

Raw materials unit cost $2.40 $2.30 Raw materials units used 11,000 10,600 Direct labor payroll $170,200 $167,200 Direct labor hours worked 14,800 15,200 Manufacturing overhead incurred $230,372 Manufacturing overhead applied $233,472 Machine hours expected to be used at normal capacity 43,500 Budgeted fixed overhead for June $69,600 Variable overhead rate per machine hour $3.20 Fixed overhead rate per machine hour $1.60
Overhead is applied on the basis of standard machine hours. 3.20 hours of machine time are required for each direct labor hour. The jobs were sold for $471,000. Selling and administrative expenses were $45,000. Assume that the amount of raw materials purchased equaled the amount used.

Explanation / Answer

(I) Material variance

Material Price variance = Actual quantity purchased x (Standard price - Actual price)

= 11,000 x ($2.30 - $2.40)

= $1,100 (Unfavorable)

Material quantity variance = Standard price per unit x (Standard quanitity - Actual quantity used)

= $2.30 x (11,000 - 10,600)

= $920 (Favorable)

Total material variance = Material price variance + Material quantity variance

= $1,100 (U) + $920 (F)

= $180 (Unfavrable)

Labor variance:

Standard labor rate per hour = $167,200 ÷ $15,200 hours = $11

Actual labor rate per hour = $170,200 ÷ 14,800 hours = $11.5

Labor price variance = Actual time x (Standard rate - Actual rate)

= 14,800 x ($11 - $11.5)

= $7,400 (Unfavorable)

Labor quantity variance = Standard rate x (Standard hours for actual output - Actual hours)

Standard hours for actual output = (15,200 ÷ 10,600) x 11,000

= 15,774 hours

Therfore, Labor quantity variance = $11 x (15,774 hours - 14,800 hours)

= $10,714 (Favorable)

Total labor variance = Labor price variance + Labor quanity variance

= $7,400 (Unfavorable) + $10,714 (Favorable)

= $3,314 (Favorable)

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