Accelerator, Inc. manufactures a fuel additive called surge. The company produce
ID: 2567380 • Letter: A
Question
Accelerator, Inc. manufactures a fuel additive called surge. The company produces and sells 87,000 containers of surge each month. The company has established the following standards for each container of surge produced: standard quantity standard price direct materials 7 gallons $4.00 per gallon direct labor 2.50 hours $14.00 per hour The following information is available for surge for the month of May: 1. 650,000 gallons of chemicals were purchased at a cost of $2,522,000. At May 31, Accelerator, Inc. had 30,000 gallons of chemical available in the storeroom. 2. 215,000 direct labor hours were worked during May at a total cost of $3,096,000. Calculate the total direct labor variance for May. If the variance is unfavorable, enter a U after your number with a space between the number and the U (i.e., 10,000 U). If the variance is favorable, enter an F after your number with a space between the number and the F (i.e., 10,000 F).
Explanation / Answer
SOLUTION
Total direct labor variance = Direct labor efficiency variance + Direct Labor Rate Variance
= $35,000 (F) + $86,000 (U)
= $51,000 (U)
Direct labor efficiency variance = (Actual hours * Standard rate) - (Standard hours * Standard rate)
= (215,000 * $14) - ((87,000 * 2.5 hours) * $14)
= $3,010,000 - $3,045,000
= $35,000 (F)
Direct Labor Rate Variance = (Actual Hours * Actual Rate) - (Actual hours * Standard rate)
= (215,000 * ($3,096,000/215,000)) - (215,000 * $14)
= (215,000 * $14.4) - (215,000 * $14)
= $3,096,000 - $3,010,000
= $86,000 (U)