Question

During the most recent month, the following activity was recorded: Twenty thousand pounds of material were purchased at a cost of $2.35 per pound. All of the material purchased was used to produce 4,000 units of Zoom. 750 hours of direct labor time were recorded at a total labor cost of $14,925. Required: 1. Compute the materials price and quantity variances for the month. 2. Compute the labor rate and efficiency variances for the month.

Answer 1

Answer: See explanation

Explanation:

The following can be derived from the question:

Actual quantity = 20,000 pounds

Actual price = $2.35

Standard price = $2.50 per unit

Actual hours = 750 hours.

The standard quantity will be calculated as:

= 4,000 units × 4.6

= 18,400 pounds

The Actual rate will be calculated as:

= Total labor cost / Actual hours

= $14,925 / 750

= $19.90

Standard hours will be:

= 0.2 hours × 4,000 units

= 800 hours.

Standard rate = $18 per hour

1. Compute the materials price and quantity variances for the month.

Material price variance:

= (AQ × AP) - (AQ × SP)

= (20,000 × $2.35) - (20,000 × $2.50)

= 47000 - 50000

= -3000

Material quantity variance:

= (AQ × SP) - (SQ × SP)

= (20,000 × $2.50) - (18,400 × $2.50)

= 50,000 - 46000

= 4000

2. Compute the labor rate and efficiency variances for the month.

Labor rate variance:

= (AH × AR) - (AH × SR)

= ($750 × $19.90) - (750 × $18)

= 14925 - 13500

= 1425

Labor efficiency variance:

= (AH × SR) - (SH × SR)

= (750 × $18) - (800 × $18)

= 13500 - 14400

= 900