I need a step by step explanation to problem 14-26 in order to make me understan

Question

I need a step by step explanation to problem 14-26 in order to make me understand the solution:

14-26 Direct Materials and Direct Labor Variance

Schmidt Machinery Company used 3,450 pounds of aluminum in June to manufacture 920 units. The company paid $28.50 per pound during the month to purchase aluminum. On June 1, the company had 50 pounds of aluminum on hand. At the end of June, the company had only 30 pounds of aluminum in its warehouse. Schmidt used 4,200 direct labor hours in June, at an average cost of $41.40 per hour.

Required: Compute for June

Schmidt’s purchase-price and usage variances for aluminum.

Schmidt’s direct labor rate and efficiency variances.

Standard Cost Sheet

SCHMIDT MACHINERY COMPANY
Standard Cost Sheet
Product: XV1 Descriptions: Quantity Unit Cost Subtotal Total Direct materials:      Aluminum 4 pounds $25 $100      PVC 1 pound 40 40 Direct Labor 5 hours 40 200 Variable factory overhead 5 hours 12 60 Total variable manufacturing cost 400 Fixed factory overhead* 5 hours 24 120 120 Standard manufacturing cost per unit $520 Standard variable selling and administrative expensive per unit $50

Explanation / Answer

Solution:

Purchase price and usage variances for Aluminum:

Standard Price ofAluminum (SP) = $25

Actual Price of Aluminum (AP) = $28.50

Standard Quantity of Aluminum for 920 units (SQ) = 920* 4 pounds = 3680 pounds

Actual Quantity of aluminum consumed (AQ)= 3450 pounds

Actual quantity of Aluminum purchased = Quantity consumed + closing Inventory of aluminum - opening inventory of aluminum = 3450 +30-50 = 3430 pounds

Price Variance for Aluminum = (SP-AP)*Actual Quantity Purchased = ($25-$28.50)*3430 = $12,005 Unfavouable

Usage Variance For Aluminum = (SQ-AQ)*SP = (3680-3450)*25 = $5,750

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