Hernandez Corporation uses a standard cost system and has established the follow
ID: 2591779 • Letter: H
Question
Hernandez Corporation uses a standard cost system and has established the following standards for one unit of product:
Standard
Quantity
Standard
Price
Standard
Cost
Direct materials
10 pounds
$2.60 per pound
$26.00
Direct labor
.25 hour
$10.00 per hour
2.50
$28.50
During October, the company purchased 240,000 pounds of material at a total cost of $588,000. The total factory wages for October were $49,400. During October, 21,000 units of product were manufactured using 211,000 pounds of material and 5,200 direct labor hours. Material quantity and price variances are recorded when materials are used.
a.
Compute the material quantity and labor efficiency variances.
b.
Compute the material price and labor rate variances.
Show whether each of the above variances was either favorable or unfavorable.
Hernandez Corporation uses a standard cost system and has established the following standards for one unit of product:
Standard
Quantity
Standard
Price
Standard
Cost
Direct materials
10 pounds
$2.60 per pound
$26.00
Direct labor
.25 hour
$10.00 per hour
2.50
$28.50
During October, the company purchased 240,000 pounds of material at a total cost of $588,000. The total factory wages for October were $49,400. During October, 21,000 units of product were manufactured using 211,000 pounds of material and 5,200 direct labor hours. Material quantity and price variances are recorded when materials are used.
a.
Compute the material quantity and labor efficiency variances.
b.
Compute the material price and labor rate variances.
Show whether each of the above variances was either favorable or unfavorable.
Standard
Quantity
Standard
Price
Standard
Cost
Direct materials
10 pounds
$2.60 per pound
$26.00
Direct labor
.25 hour
$10.00 per hour
2.50
$28.50
Explanation / Answer
a) Material quantity variance (Actual qty used - standard qty allowed)*standard rate (211000 - 21000*10)*2.6 2600 U labor efficiency variance (Actual hours - stand hours )*std rate (5200 - 21000*.25)*10 500 F b) material price variance (Actual rate - std rate )*aQ purchased (588,000 - 240000*2.60) 36000 F labor price variance (actual rate - std rate )*actual hours 49400 - 10*5200) 2600 F