Maxine Watters, the managerial accountant, has been asked by the President of Coolare Ceiling Fan Company to prepare an analysis of the effectiveness of the new management team. The company manufactures paper fans.2020 standards:Direct materials - 4 parts @ $2 per partDirect labor - one half hour (0.5) @ $10 per hourEstimated production - 100,000Actual results 2020:Direct materials - 585,000 parts at a total cost of $1,462,500 were purchased and usedDirect labor - 51,000 hours at a cost of $561,000Actual production - 130,000 fansRequired:Requirement: Compute the direct material and direct labor price and efficiency variances.
What will be an ideal response?
Direct material price variance:
AQ(AP ? SP)
AP = $1,462,500/585,000 = $2.50 per part;
585,000 ($2.50 ? $2.00) = $292,500 unfavorable.
Direct material efficiency variance:
SP(AQ ? SQ)
SQ = 130,000 * 4 = 520,000;
$2(585,000 ? 520,000) = $130,000 unfavorable.
Direct labor rate variance:
AH(AR ? SR)
AR = $561,000/51,000 = $11 per hour;
51,000($11 ? $10) = $51,000 unfavorable.
Direct labor efficiency variance:
SR(AH ? SH)
SH = 0.5 hours * 130,000;
$10(51,000 ? 65,000) = $140,000 favorable.
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