Question

Assume that Schmidt Machinery Company had the standard costs reflected in Exhibit 14.5. In a given month, the company used 3,530 pounds of aluminum to manufacture 936 units. The company paid $29.00 per pound during the month to purchase aluminum. At the beginning of the month, the company had 66 pounds of aluminum on hand. At the end of the month, the company had only 46 pounds of aluminum in its warehouse. Schmidt used 5,350 direct labor hours during the month, at an average cost of $42.00 per hour. Required: Compute for the month the following variances: 1. The purchase-price variance for aluminum. Indicate whether this variance is favorable (F) or unfavorable (U). 2. The usage variance for aluminum. Indicate whether this variance is favorable (F) or unfavorable (U). 3. The direct labor rate variance. Indicate whether this variance is favorable (F) or unfavorable (U). 4. The direct labor efficiency variance. Indicate whether this variance is favorable (F) or unfavorable (U).

Answer 1

Answer:

price variance  $14,040 U

quantity variance  $ 5,650  F

rate variance          $  10,700  U

efficiency variance  $ 26,800 U

Explanation:

Missing information attached:

Purchase of Aluminium:

66 ending + 3,530 used - 46 beginning = 3,510

DIRECT MATERIALS VARIANCES

$(standard\:cost-actual\:cost) \times actual \: quantity= DM \: price \: variance$

std cost         $25.00

actual cost  $29.00

quantity             3,510 (purchase)

difference  $(4.00)

price variance  $(14,040.00)

$(standard\:quantity-actual\:quantity) \times standard \: cost = DM \: quantity \: variance$

std quantity             3756.00 (939 units x 4 pounds per unit)

actual quantity     3530.00

std cost                       $25.00

difference               226.00

quantity variance  $5,650.00

DIRECT LABOR VARIANCES

$(standard\:rate-actual\:rate) \times actual \: hours = DL \: rate \: variance$

std rate          $40.00

actual rate  $42.00

actual hours 5,350

difference  $(2.00)

rate variance  $(10,700.00)

$(standard\:hours-actual\:hours) \times standard \: rate = DL \: efficiency \: variance$

std  hours 4680.00

actual hours 5350.00

std rate  $40.00

difference -670.00

efficiency variance  $(26,800.00)