Question

Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 4.6 pounds $ 2.50 per pound $ 11.50 Direct labor 0.2 hours $ 18.00 per hour $ 3.60 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. (For all requirements, Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

Answer:

1. Material Variances

Material Price Variance = $3,000 F

Material Quantity Variance = $4,000 U

2. Labor Variances

Labor Rate Variance = $1,425 U

Labor Efficiency Variance = $900 F

Explanation:

Provided information we have,

Direct Materials

Standard Quantity = 4.6 pounds

Standard Rate = $2.50 per pound

Direct Labor

Standard Hours = 0.2 hour per unit

Standard Rate = $18 per hour

Actual Materials

Actual Quantity = 20,000 pounds

Actual Rate = $2.35 per pound

Actual Labor

Labor Hours = 750 hours

Labor Cost = $14,925

Labor rate = $\frac{14,925}{750} = 19.9 per hour$

Actual Units produced = 4,000

1. Material Variances

$Material\ Price\ Variance = (Standard\ Price - Actual\ Price) \times Actual\ Units$

= ($2.50 - $2.35) $\times$ 20,000 pounds

= $3,000

As the actual rate is less than standard rate the variance is favorable.

$Material\:Quantity\ Variance = (Standard\ Quantity - Actual\ Quantity) \times Standard\ Rate$

Standard Quantity = 4,000 $\times$ 4.6 = 18,400 pounds

Material Quantity Variance = (18,400 - 20,000) $\times$ $2.50

= - $4,000

As the actual raw material quantity used is higher than standard raw material quantity the variance is unfavorable.

2. Labor Variances

$Labor\ Rate\ Variance = (Standard\ Rate - Actual\ Rate) \times Actual\ Hours$

= ($18 - $19.9) $\times$ 750 = - $1,425

As actual rate is higher than standard rate thus the variance is unfavorable.

$Labor\ Efficiency\ Variance = (Standard\ Hours - Actual\ Hours) \times Standard\ Rate$

Standard Hours = 4,000 $\times$ 0.2 = 800

Labor Efficiency Variance = (800 - 750) $\times$ $18

= $900

As the Standard Hours is more than Actual Hours the variance is favorable.

1. Material Variances

Material Price Variance = $3,000 F

Material Quantity Variance = $4,000 U

2. Labor Variances

Labor Rate Variance = $1,425 U

Labor Efficiency Variance = $900 F

Answer 2

Variance is termed as the difference between the budgeted, planned, or standard cost and the actual amount incurred or sold in the firm.

1. Material Variances

Material Price Variance = $3,000 F

Material Quantity Variance = $4,000 U

2. Labor Variances

Labor Rate Variance = $1,425 U

Labor Efficiency Variance = $900 F

The given information is:

Direct Materials

Standard Quantity = 4.6 pounds

Standard Rate = $2.50 per pound

Direct Labor

Standard Hours = 0.2 hours per unit

Standard Rate = $18 per hour

Actual Materials

Actual Quantity = 20,000 pounds

Actual Rate = $2.35 per pound

Actual Labor

Labor Hours = 750 hours

Labor Cost = $14,925

$\begin{aligned} \text{Labor rate}&=\frac{\text{Labor cost}}{\text{Labor hours}}\\&= \frac{\ 14,925}{750}\\& =19.9 \text{per hour}\end{aligned}$

Actual Units produced = 4,000

1. Material Variances

$\begin{aligned} \text{Material price variance}&= \text{Standard price}-\text{Actual price}\times \text{Actual units}\\&= \ 2.50 - \ 2.35 \times 20,000 pounds\\&= \ 3,000 \end{aligned}$

As the actual rate is less than the standard rate the variance is favorable

As the actual raw material quantity used is higher than the standard raw material quantity the variance is unfavorable.

2. Labor Variances

$\begin{aligned}\text{Labor rate variance}&=\text{Standard rate}-\text{Actual rate} \times \text{Actual hours}\\&= \ 18 - \ 19.9 \times 750 \\&= -\ 1,425\end{aligned}$

As the actual rate is higher than the standard rate thus the variance is unfavorable.

$\begin{aligned} \text{Labor efficiency variance}&= \text{Standard hours}-\text{Actual hours} \times \text{Standard Rate} \\\text{Standard hours}& = 4,000 \times 0.2 \\&= 800 \\\text{Labor efficiency variance}&=800-750 \times \ 18\\&= - \ 900\end{aligned}$

As the Standard Hours is more than Actual Hours the variance is favorable.

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