Standard cost system-materials and labor variances The Air Products INC on produ

Question

Standard cost system-materials and labor variances

The Air Products INC on produces a single product. The company has developed the following standards for labor and materials:

                                                                                          Direct Materials                              Direct Labor

Standard quantity or hrs per unit                               ? pounds per unit                             2.0 hrs per unit      

Standard price or rate                                                  ? per pound                                       $15 per hour

Standard cost per unit                                                  ?                                                          $30.00

During the past month, the company purchased 3,500 pounds of direct materials at a total cost of $4,550. All of this material was used in the production of 1,300 units of output. Direct labor cost totaled $40,300 for the month. The following variances have been computed:

Materials quantity variance $680 unfav.

Total materials variance $325 fav.

Labor efficiency variance $3,475 fav.

Compute the following. If the result is a variance indicate whether it is favorable or unfavorable. If necessary, round your answers.

(a) The standard price of materials
(b) The standard quantity of materials allowed per unit of output
(c) The actual direct labor cost per hour for the month
(d) The labor rate variance

Explanation / Answer

(a) The standard price of materials =

Actual quantity per unit = 3500 / 1300 = 2.69 pounds per unit.

Actual price per pound = 4550 / 3500 = $1.3 per pound.

Material Price Variance = (Standard Price – Actual Price) Actual Quantity

1005 = (Standard Price – 1.3) 3500

Thus Standard Price of materials = 5555 / 3500 = $1.59 per pound.

(b) The standard quantity of materials allowed per unit of output

(Standard Quantity – Actual Quantity) Standard Price

(Standard Quantity – 3500) 1.59 = 680 (Unfavorable)

Thus total standard quantity = 4885 / 1.59 = 3072 pounds approx.

Standard quantity of materials per unit of output = 3072 / 1300 = 2.36 pounds

(c) The actual direct labor cost per hour for the month

(Standard hours – Actual hours) Standard rate

(2600 – Actual hours) 15 = 3475

Thus Actual hours = 2368 approx.

Actual direct labor cost per hour = 40300 / 2368 = $17 per hour

(d) The labor rate variance

(Standard rate – Actual rate) Actual hours

(15 – 17) 2368 = $4736 (Unfavorable)

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