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27 March, 21:23

The following information describes the production activities of Mercer Manufacturing for the yearActual direct materials used 30,000 lbs. at $5.15 per 1bActual direct labor used 9,150 hours for a total of $186, 660Actual units produced 54,120Budgeted standards for each unit produced are 0.50 pounds of direct material at $5.10 per pound and 10 minutes at $21.40 per hourAQ = Actual QuantitySQ = Standard QuantityAP = Actual PriceSP = Standard PriceAH = Actual HoursSH = Standard HoursAR = Actual RateSR = Standard Rate (1) Compute the direct materials price and quantity variances. (2) Compute the direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

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  1. 27 March, 23:55
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    Standard quantity = Actual units produced * 0.50 pound per unit

    = 54,120 * 0.50

    = 27,060 pounds

    Standard hours = Actual units produced * 1/6 hour per unit

    = 54,120 * 1/6

    = 9,020 hours

    Actual rate per hour = $186, 660 : 9,150 hours

    = $20.4

    (a) (i) Direct material price variance:

    = (AQ * AP) - (AQ * SP)

    = (30,000 * $5.15) - (30,000 * $5.10)

    = $154,500 - $153,000

    = $1,500 Unfavorable

    (ii) Direct material quantity variance:

    = (AQ * SP) - (SQ * SP)

    = (30,000 * $5.10) - (27,060 * $5.10)

    = $153,000 - $138,006

    = $14,994 Unfavorable

    (b) (i) Direct labor rate variances:

    = (AH * AR) - (AH * SR)

    = (9,150 * $20.4) - (9,150 * $21.40)

    = $186,660 - $195,810

    = $9,150 Favorable

    (ii) Direct labor efficiency variances:

    = (AH * SR) - (SH * SR)

    = (9,150 * $21.40) - (9,020 * $21.40)

    = $195,810 - $193,028

    = $2,782 Unfavorable
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