Problem 25-2A Costs and Production Data Actual Standard Problem 25-2A Ayala Corp

Question

Problem 25-2A

Costs and Production Data

Actual

Standard

Problem 25-2A

Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2017.

Costs and Production Data

Actual

Standard

Raw materials unit cost $2.30 $2.20 Raw materials units used 11,500 11,000 Direct labor payroll $167,240 $162,640 Direct labor hours worked 14,800 15,200 Manufacturing overhead incurred $230,572 Manufacturing overhead applied $233,472 Machine hours expected to be used at normal capacity 43,500 Budgeted fixed overhead for June $69,600 Variable overhead rate per machine hour $3.20 Fixed overhead rate per machine hour $1.60
Overhead is applied on the basis of standard machine hours. 3.20 hours of machine time are required for each direct labor hour. The jobs were sold for $458,000. Selling and administrative expenses were $41,200. Assume that the amount of raw materials purchased equaled the amount used.

Explanation / Answer

Solution 1:

Standard quantity of material for actual production = 11000 units

Actual quantity of material used = 11500 units

Standard price of material = $2.20

Actual price of material = $2.30

Material price variance = (SP - AP) * AQ Purchased = ($2.20 - $2.30) * 11500 = $1,150 U

Material quantity variance = (SQ - AQ) * SR = (11000 - 11500) * $2.20 = $1,100 U

Total Material variance = Material price variance + Material quantity variance = $1,150 U + $1,100 U = $2,250 U

Solution 2:

Standard hours of direct labor = 15200 hours

Standard rate of direct labor = $162,640 / 15200 = $10.70 per hour

Actual hours of direct labor = 14800 hours

Actual rate of direct labor = $167,240 / 14800 = $11.30 per hour

Direct labor rate variance = (SR - AR) * AH = ($10.70 - $11.30) * 14800 = $8,880 U

Direct labor efficiency variance = (SH - AH) * SR = (15200 - 14800) * $10.70 = $4,280 F

Total labor variance = Direct labor rate variance + Direct labor efficiency variance

= $8,880 U + $4,280 F = $4,600 U

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