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

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Accounting

Reed Corp. has set the following standard direct materials anddirect labor costs per unit for the product itmanufactures.

Direct materials (15 lbs. @ $4 per lb.)$60
Directlabor (3 hrs. @ $15 per hr.)45


During June the company incurred the following actual costs toproduce 8,500 units.

Direct materials (130,400 lbs. @ $3.70 per lb.)$482,480
Directlabor (29,700 hrs. @ $15.15 per hr.).449,955


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

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

(1) Compute the direct materials price andquantity variances.
(2) Compute the direct labor rate variance and thedirect labor efficiency variance. Indicate whether each variance isfavorable or unfavorable.

Answer & Explanation Solved by verified expert
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Answers

  • Requirement 1

Actual Cost

Standard Cost

AQ

x

AP

AQ

x

SP

SQ

x

SP

             130,400

x

$                     3.70

             130,400

x

$            4.00

             127,500

x

$               4.00

$          482,480.00

$      521,600.00

$      510,000.00

Price Variance - Material

$ 39,120.00

Quantity Variance - Material

$            11,600.00

Direct material Price Variance

$ 39,120.00

Favourable

Direct material Quantity Variance

$ (11,600.00)

Unfavourable

Total Direct material Variance

$     27,520.00

Favourable

  • Requirement 2

Actual Cost

Standard Cost

AH

x

AR

AH

x

SR

SH

x

SR

     29,700

x

$                15.15

                   29,700

x

$    15.00

             25,500

x

$              15.00

$   449,955.00

$     445,500.00

$    382,500.00

Rate Variance - Labor

$         4,455.00

Efficiency Variance - Labor

$       63,000.00

Labor Rate Variance

$         4,455.00

Unfavourable

Labor Efficiency Variance

$       63,000.00

Unfavourable

Total Labor Cost Efficiency

$       67,455.00

Unfavourable

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