Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass throug

Question

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials, X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis) Raw Material X442 2.0 kilos 4.0 kilos Y661 1.5 liters 3.0 liters Standard Labor Time Sintering 0.30 hours 0.90 hours 0.40 hours 1.00 hours Finishing Product Alpha6 Zeta7 Information relating to materials purchased and materials used in production during May follows Material X442 Y661 Purchases 14,400 kilos 15,400 liters Purchase Cost $59,040 $26,180 Standard Price $3.90 per kilo $1.80 per liter Used in Production 8,900 kilos 13,400 liters The following additional information is available a. The company recognizes price variances when materials are purchased b. The standard labor rate is $20.00 per hour in Sintering and $19.00 per hour in Finishing c. During May, 1,200 direct labor-hours were worked in Sintering at a total labor cost of $27,480, and 2,890 direct labor-hours were worked in Finishing at a total labor cost of $60,690 d. Production during May was 1,900 Alpha6s and 1,300 ZetaTs

Explanation / Answer

Solution 1:

Solution 2:

Material variance - X442:

Standard quantity of material = 1900*2 + 1300*4 = 9000 Kilo

Actual quantity of material purchased = 14400 Kilo

Actual quantity of material consumed = 8900 Kilo

Standard price of material = $3.90

Actual price of material = $59,040 / 14400 = $4.10

Material price variance = (SP - AP) * AQ Purchased = ($3.90 - $4.10) * 14400 = $2,880 U

Material quantity variance = (SQ - AQ) * SP = (9000 - 8900) * $3.90 = $390 F

Material variance - Y661:

Standard quantity of material = 1900*1.5 + 1300*3 = 6750 Litre

Actual quantity of material purchased = 15400 ltr

Actual quantity of material consumed = 13400 Kilo

Standard price of material = $1.80

Actual price of material = $26,180 / 15400 = $1.70

Material price variance = (SP - AP) * AQ Purchased = ($1.80 - $1.70) * 15400 = $1,540 F

Material quantity variance = (SQ - AQ) * SP = (6750 - 13400) * $1.80 = $11,970 U

Solution 3:

Direct labor variance - Sintering:

Standard hours of labor = 1900*0.3 + 1300*0.4 = 1090 hours

Actual hours of labor = 1200 hours

Standard rate of labor = $20 per hour

Actual rate of labor = $27,480 / 1200 = $22.90

Direct labor rate variance = (SR - AR) * AH = ($20 - $22.90) * 1200 = $3,480 U

Direct labor efficiency variance = (SH - AH) * SR = (1090 - 1200) * $20 = $2,200  U

Direct labor variance - finishing:

Standard hours of labor = 1900*0.9 + 1300*1 = 3010 hours

Actual hours of labor = 2890 hours

Standard rate of labor = $19 per hour

Actual rate of labor = $60,690 / 2890 = $21

Direct labor rate variance = (SR - AR) * AH = ($19 - $21) * 2890 = $5,780 U

Direct labor efficiency variance = (SH - AH) * SR = (3010 - 2890) * $19 = $2,280  F

Standard cost card - Alpha 6 Particulars Per unit cost Direct Material: X442 (2*$3.90) $7.80 Y661 (1.50*$1.80) $2.70 Direct Labor: Sintering (0.3*$20) $6.00 Finishing (0.9*$19) $17.10 Total $33.60

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