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.

Budgeted standards for each unit produced are 0.50 pounds of direct material at $4.40 per pound and 10 minutes of direct labor at $20.80 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.
  

Actual direct materials used 24,000 lbs. at $4.45 per lb. Actual direct labor used 6,505 hours for a total of $128,799 Actual units produced 36,030

Explanation / Answer

Given that

AQ = Actual Quantity 24000 Lbs SQ = Standard Quantity 18,015 lbs (0.5X36,030) AP = Actual Price $4.45 Per lb SP = Standard Price $4.40 Per lb AH = Actual Hours 6,505 hours SH = Standard Hours 6,005 hours (36030 X10 min/60 min) AR = Actual Rate $19.8 per Hour ($128,799/6,505 hours) SR = Standard Rate $20.8 per Hour Material Price Variance (Standard Price - Actual Price) X Actual Quantity Consumed = [4.4 - 4.45] X 24,000 = 1,200 Unfavourable Material Quantity Variance (Standard Quantity for Actual Output - Actual Quantity) X Standard Price = [18,015 - 24,000] X 4.4 = 26,334 Unfavourable Labour Rate Variance (Standard rate - Actual rate) X Actual Hours = [20.8 - 19.8] X 6,505 hours = 6,505 Favourable Labour Efficieny Variance (Standard Hours for Actual Output - Actual Hours worked ) X Standard rate = [ 6005- 6,505] X 20.8 = 10,400 Unfavourable

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