Amber Company produces iron table and chair sets. During October, Amber’s costs

Question

Amber Company produces iron table and chair sets. During October, Amber’s costs were as follows:

Required:
1. Calculate the total cost of purchases for October.

2. Compute the direct materials price variance based on quantity purchased. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

3. Calculate the direct materials quantity variance based on quantity used. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

4. Compute the standard direct labor rate for October. (Round your answer to 2 decimal places.)

5. Compute the direct labor efficiency variance for October. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Actual purchase price $ 2.30 per lb. Actual direct labor rate $ 7.50 per hour Standard purchase price $ 2.10 per lb. Standard quantity for sets produced 970,000 lbs. Standard direct labor hours allowed 11,000 Actual quantity purchased in October 1,115,000 lbs. Actual direct labor hours 10,000 Actual quantity used in October 1,000,000 lbs. Direct labor rate variance $5,500 F

Explanation / Answer

1) Total purchases = 2.30*1115000 = 2564500

2) Material price variance = (2.10-2.30)*1115000 = 223000 U

3) Material quantity variance = (970000-1000000)*2.10 = 63000 U

4) Labour rate variance = (Standard rate-actual rate)actual hours

                        5500    = (X-7.50)*10000

                        5500    = 10000X-75000

-10000X    =- 80500

Standard rate per hour = 8.05

5) Direct labour efficiency variance = (11000-10000)*8.05 = 8050 F

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