Maki, Inc. manufactures a product that has the following standard costs:Direct materials: 40 yards at $2.70 per yard$108Direct labor: 8 hours at $18.00 per hour144Total$252The following information pertains to July: Direct material purchased: 42,500 yards at $2.78 per yard, or $118,150Direct material used: 36,000 yardsDirect labor: 7,500 hours at $18.30 per hour, or $137,250Actual completed production: 1,050 unitsAssume that the company computes variances at the earliest point in time.Required: Calculate the direct-material price and quantity variances, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.
What will be an ideal response?
Direct Material Price Variance: 36,000 × ($2.78 - $2.70) = $2,880 U
Direct Material Quantity Variance: (36,000 - 42,000*) × $2.70 = $16,200 F
*Standard Quantity = 1,050 units × 40 yards = 42,000 yards
Direct Labor Rate Variance: ($18.00 - $18.30) × 7,500 hours = $2,250 U
Direct Labor Efficiency Variance: (8,400*- 7,500) × $18.00 = $16,200 F
*Standard Hours = 1,050 units × 8 hours = 8,400 hours
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