ABC company manufactures and sells product X. The standards for materials and labor costs to manufacture a unit of product X are as follows:

Materials: 6lbs. @ $2 per lb. $12.00
Direct labor: 1 hour @ $8 per hour $8.00

ABC company purchased 26000 pounds of direct materials for $27,300 and manufactured 4,000 units of product X during January 2012.

The following variances data belong to the January 2012:

Materials price variance $2,600 Unfavorable
Materials quantity variance $2,000 Unfavorable
Direct labor rate variance $1,520 Unfavorable
Direct labor efficiency variance $1,600 Favorable

Required:

  1. Compute standard quantity of direct materials allowed (in pounds) for January production.
  2. Compute the actual quantity of materials used (in pounds) for January production.
  3. Compute the standard direct labor hours allowed for January production.
  4. Compute actual direct labor hours worked for January production.
  5. Compute actual direct labor rate.

Solution:

(1) Standard quantity of direct materials allowed:

Actual production for January 4,000 units
Standard materials per unit 6 pounds
——-
Standard quantity of materials allowed 2,4000 pounds
——-

(2) Actual quantity of direct materials used :

Standard quantity of materials allowed 2,4000 pounds
Unfavorable materials quantity variance ($2,000 / $2) 1,000 pounds
——-
 Actual quantity of materials used 25,000 pounds
——-

(3) Standard direct labor hours allowed for January production:

Actual production for January 4,000 units
Standard hours per unit 1 hour
——-
Standard hours allowed 4,000 hours
——-

(4) Actual direct labor hours worked for January production :

Standard hours allowed for 4000 units (4000 units × 1 hour) 4,000 hours
Favorable direct labor efficiency variance ($1600 / $8) 200 hours
——-
Actual hours worked 3,800 hours
——-

(5) Actual direct labor rate:

Standard direct labor rate $8.00
Unfavorable direct labor rate variance ($1,520 / 3,800 hours) $0.40
——-
Actual direct labor rate $8.40
——-
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