Megham Company manufactures a single product. The following standards have been developed for it: Direct Material6pounds$4/poundDirect Labor2hours$15/hourDuring May, the following actual activities occurred: Material purchased, 12,000 pounds for $45,600; material used in the production of 2,000 units of product, 13,000 pounds; direct labor, 3,500 hours costing $56,000.Required:(1) Compute the following variances:(a) material quantity variance.(b) labor rate variance.(c) labor efficiency variance.(2) Give one possible explanation for each of the 3 variances computed.
What will be an ideal response?
(1)
(a) $4,000 unfavorable = $4[13,000 - 6(2,000)]
(b) $3,500 unfavorable = $56,000 - $15(3,500)
(c) $7,500 favorable $15[3,500 - 2(2,000)]
(2)
(a) Low quality materials, less efficient machinery, theft.
(b) Higher skilled workers, workers with greater seniority and higher wages.
(c) Higher skilled workers, workers with greater seniority (more experience), higher quality materials, more efficient machinery.
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