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Exercise 08-12 Direct materials and direct labor variances LO P3

Reed Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.

Direct materials (10 lbs. @ $3 per lb.) $30
Direct labor (2 hrs. @ $12 per hr.) 24

During June the company incurred the following actual costs to produce 9,000 units.

Direct materials (92,000 lbs. @ $2.95 per lb.) $ 271,400
Direct labor (18,800 hrs. @ $12.05 per hr.) 226,540

AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate

AQ = Actual Quantity SQ = Standard Quantity AP = Actual Price SP = Standard Price

(1) Compute the direct materials price and quantity variances. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.) (2) Compute the direct labor rate variance and the direct labor efficiency variance. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)

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