Al-Shabad Company produces a single product. The company has set the following standards for materials and labor: Standard quantity or hours per unit Standard price or rateDirect materials ?pounds per unit $?per poundDirect labor 3.0hours per unit $10per hourDuring the past month, the company purchased 7,000 pounds of direct materials at a cost of $17,500. All of this material was used in the production of 1,300 units of product. Direct labor cost totaled $36,750 for the month. The following variances have been computed: Materials quantity variance$1,375UTotal materials variance$375FLabor efficiency variance$4,000FRequired:1. For direct materials:a. Compute the standard price per pound of materials.b. Compute the standard quantity allowed for materials for the month's

Question

production.c. Compute the standard quantity of materials allowed per unit of product.2. For direct labor:a. Compute the actual direct labor cost per hour for the month.b. Compute the labor rate variance.

What will be an ideal response?

Answer 1

1. 
a. 
Materials Price Variance = AQ(AP-SP)
7,000 pounds ($2.50** - SP) = $1,750 F*
$17,500 - 7,000 pounds × SP = $(1,750)
7,000 pounds × SP = $19,250
SP = $2.75
* $1,375U + $375 F = $1,750 F
** 17,500 ÷ 7,000 pounds = $2.50 per pound

b. 
Materials Quantity Variance = SP (AQ-SQ)
$2.75 (7,000 pounds - SQ) = $1,375 U
$19,250 - $2.75 × SQ = $1,375
$2.75 × SQ = $17,875
SQ = 6,500 pounds

c. 
6,500 pounds ÷ 1,300 units = 5 pounds per unit.

2. 
a. 
Labor Efficiency Variance = SR(AH-SH)
$10 (AH - 3,900*) = $4,000 F
$(4,000) = $10 × AH - $39,000;
$10 × AH = $35,000
AH = 3,500
*1,300 units × 3 hours/unit = 3,900 hours.

b. 
Labor Rate Variance = AH(AR - SR)
= 3,500 ($10.50* - $10.00) = $1,750 U. 
*$36,750 total labor cost ÷ 3,500 hours = $10.50/hour.