HUTTO CORP HAS SET THE FOLLOWING STANDARD DIRECT MATERIALS AND DIRECT LABOR COST

Question

HUTTO CORP HAS SET THE FOLLOWING STANDARD DIRECT MATERIALS AND DIRECT LABOR COSTS PER UNIT FOR THE PRODUCT MANUFACTURERS

Direct materials (15 lbs at 4$ per pound) 60$

direct labor (3 hours at 15 $ per hour) 45$

During may the companyincurred the following actual costs to produce 9,000 units

direct materials (138,000lbs at 3.75 per pound) 517,500

direct labor (31,000 hours at 15.1 per hour) 468,100

Compute the 1) direct materials price and quantity variances and 2) direct labor rate and effeciency variances. Indicate if it is favorable or unfavorable

Explanation / Answer

Solution:

(A). Material Price Varience:

Material Price Varience = 1,38,000 * 3.75 - 1,38,000 * 4

= 5,17,500 - 5,52,000

   = 34,500 Unfavarable

(B). Material Quantity Varience:

Material Quantity Varience = (15 - 1,38,000) * 4

   = 1,37,985 * 4

   = 5,51,940 Unfavarable

(C). Direct Labour Rate Varience:

  Direct Labour Rate Varience = (31,000 hrs * $ 15.1) - (3 hrs * $ 15)

   = 4,68,100 - 45

   = 4,68,055 Favarable

(D). Direct Labour Efficiency Varience:

Direct Labour Efficiency Varience = 31,000 hrs * $15 - 3 hrs * $ 15

= 4,65,000 - 45

   = 4,64,955 Favarable

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