Problem 5 (Supplemental Problem #2)-Compute materials and labor variances Algers
ID: 2558395 • Letter: P
Question
Problem 5 (Supplemental Problem #2)-Compute materials and labor variances Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following standard cost sheet: Direct materials (5 lbs. @ $2.60) Direct labor (0.75 hr. @ $18.00) Fixed overhead (0.75 hr. @ $4.00) Variable overhead (0.75 hr. $3.00) Standard cost per unit 13.00 13.50 $ 3.00 2.25 31.75 Algers computes its overhead rates using practical volume, which is 54,000 units. The actual results for the year are as follows: a. Units produced: 53,000 b. Direct materials purchased: 274,000 pounds at $2.50 per pound Direct materials used: 270,300 pounds c. d. Direct labor: 40,100 hours at $17.95 per hour e. Fixed overhead: $161,700 Variable overhead: $122,000 Required: (circle For Uto indicate whether the variance is favorable or unfavorable) I. Compute the materials price variance: 2. Compute the materials quantity usage variance: 3. Compute the total materials variance: 4. Compute the labor rate variance: 5. Compute the labor efficiency variance: 6. Compute the total labor variance: f. F or U F or U F or U F or U F or U F or U You must show your work to receive credit***Explanation / Answer
1. Materials Price Variance = (Standard Price - Actual Price) x Actual Quantity
= (2.60 - 2.50) x 270,300
= 27,030 F
2. Materials Quantity Usage Variance = (Standard Quantity - Actual Quantity) x Standard Price
= (53000 x 5 - 270,300) x 2.60
= (265,000 - 270,300) x 2.60
= -13,780 or 13,780 U
3. Total Materials Variance = Standard Cost - Actual Cost
= (Standard Quantity x Standard Price) - (Actual Quantity x Actual Price)
= (265,000 x 2.60) - (270,300 x 2.50)
= 689,000 - 675,750
= 13,250 F
4. Labour Rate Variance = (Standard Rate – Actual Rate) x Actual Hours
= (18 - 17.95) x 40,100
= 2,005 F
5. Labour Efficiency Variance = (Actual Hours - Standard Hours) x Standard Rate
= (40,100 - 53,000 x 0.75) x 18
= 6,300 U
6, Total Labour Variance = Standard Wages - Actual Wages
= Standard Hours x Standard Rate - Actual Hours x Actual Rate
= 53,000 x 0.75 x 18 - 40,100 x 17.95
= 715,500 - 719,795
= -4295 or 4,295 U