Chapter 10
215. Labor Rate Variance
216. Labor Efficiency Variance
Subjective Short Answer
218. Top Notch Music Inc. produces car stereos. During the year Top Notch Music produced 7,000 stereos. Materials and
labor standards for producing these units are as follows:
Direct materials (1 electronic component kit @ $185) $185
Direct materials (2 plastic casing @ $45) 90
Direct labor (8 hours @ $15) 120
Required:
A. Compute the standards hours allowed for a volume of 7,000 stereos and the planned cost.
B. Compute the standard number of kits and casings allowed for a value of 7,000 units and the planned cost for each
direct material.
C. Compute the total budget variances for materials and labor assuming that actual number of electronic kits purchased
and used were 7,300 at a price of $179 and actual plastic casings purchased were 14,400 at a price of $43. Actual labor
was 57,200 hours at $15.75 per hour.
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219. Leeds Company uses the following rule to determine whether labor efficiency variances should be investigated:
A labor efficiency variance will be investigated when the variance is greater than either $100 or 10% of the standard labor
cost.
During September, the company used 500 direct labor hours at a rate of $15 per hour. Its standard rate is 475 direct labor
hours at a rate of $14.50 per hour.
A. Determine the company’s labor efficiency variance and whether it is favorable or unfavorable.
B. Should the variance be investigated?
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220. Acme Brick Company uses the following rule to determine whether materials usage variances should be investigated:
A materials usage variance will be investigated when the variance is greater than either $5,000 or 10% of the standard
cost.
During June, the company purchased and used 9,500 pounds of concrete for $5 per pound. It was able to make 20,000
bricks. Its standard quantity of materials allowed is 0.45 pound of concrete per brick at a standard price of $6 per pound.
A. Determine Acme’s material usage variance and whether it is favorable or unfavorable.
B. Should the variance be investigated?
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221. Westminster Company has the following information concerning its direct materials:
Direct Materials:
Standard Quantity 100,000
Actual Quantity 80,000
Standard Price $3
Actual Price $4
A. Determine the materials price variance and whether it is favorable or unfavorable.
B. Determine the materials usage variance and whether it is favorable or unfavorable.
C. Westminster has set control limits stating that actual costs should be investigated if they fall outside the
acceptable range of the standard materials cost ±10%.
i. What is the standard materials cost?
ii. What are the upper and lower control limits?
iii. What is the actual materials cost?
iv. Should the actual materials cost be investigated?
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222. PURE Inc. produces flavored waters, sold in gallons. Recently the company adopted the following materials standard
for one gallon of its raspberry flavored water:
Direct materials (90 oz. @ $0.08) $ 7.20
During the first month of operations the company experienced the following results:
A. Gallon units produced: 80,000
B. Ounces of materials purchased and used: 7,320,000 ounces at $0.07
C. No beginning or ending inventories of raw materials
Required:
A. Compute the materials price variance indicating if it is favorable or unfavorable.
B. Compute the materials usage variance indicating if it is favorable or unfavorable.
223. McDaniel Company manufactures 100-pound bags of fertilizer that have the following unit standard costs for direct
materials and direct labor:
Direct materials (100 lbs. @ $1.00 per lb.) $100.00
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Direct labor (0.5 hours at $24 per hour) 12.00
Total standard prime cost per 100 lb. bag $112.00
The following activities were recorded for October:
• 1,000 bags were manufactured.
• 95,000 lbs. of materials costing $76,000 were purchased.
• 102,500 lbs. of materials were used.
• $12,000 was paid for 475 hours of direct labor.
There were no beginning or ending work-in-process inventories.
Required:
A. Compute the direct materials variances.
B. Compute the direct labor variances.
C. Give possible reasons for the occurrence of each of the preceding variances.
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224. DuRoss Company produces coats. The company uses a standard costing system and has set the following standards
for materials and labor:
Fabric (8 yards @ $6) $48
Direct labor (2 hours @ $18) 36
Total prime cost $84
During the year DuRoss produced 55,000 coats. Actual fabric purchased was 460,000 yards at $5.75 per yard. There were
no beginning or ending inventories of fabric. Actual direct labor was 120,000 hours at $19.25 per hour.
Required:
A. Compute the cost of leather and direct labor that should be incurred for the production of 55,000 coats.
B. Compute the total budget variances for materials and labor.
C. Compute the materials price variance.
D. Compute the materials usage variance.
E. Compute the labor rate variance.
F. Compute the labor efficiency variance.
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225. Moving Baby Company produces baby strollers. During the year 90,000 strollers were produced. The actual labor
used was 225,000 hours at $12.75 per hour. Moving Baby has the following labor standards: 2 hours at $13.00 per hour.
Required:
A. Compute the labor rate variance, indicating if it is favorable or unfavorable.
B. Compute the labor efficiency variance, indicating if it is favorable or unfavorable.
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226. Starling Manufacturing has developed the following standards for one of its products.
Materials: 5 yards × $6 per yard $30
Direct labor: 2 hours × $8 per hour 16
The company records materials price variances at the time of purchase.
The following activity occurred during December:
Materials purchased: 5,200 yards costing $29,900
Materials used: 4,750 yards
Units produced: 1,000 units
Direct labor: 2,100 hours costing $17,850
Required:
A. Calculate the direct materials price variance.
B. Calculate the direct materials usage variance.
C. Calculate the direct labor rate variance.
D. Calculate the direct labor efficiency variance.
227. Eastminster Company has the following information:
Direct Materials: Direct Labor:
Standard Quantity 10,000 Standard Hours 2,000
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Actual Quantity 12,000 Actual Hours 1,875
Standard Price $14 Standard Rate $10
Actual Price $12 Actual Rate $11
A. Determine the materials price variance and whether it is favorable or unfavorable.
B. Determine the materials usage variance and whether it is favorable or unfavorable.
C. Determine the labor rate variance and whether it is favorable or unfavorable.
D. Determine the labor efficiency variance and whether it is favorable or unfavorable.
228. Crawford Corporation has the following information:
Direct Materials: Direct Labor:
Standard Quantity 1,500 Standard Hours 500
Actual Quantity 1,400 Actual Hours 525
Standard Price $20 Standard Rate $14
Actual Price $17.50 Actual Rate $14
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A. Determine the materials price variance and whether it is favorable or unfavorable.
B. Determine the materials usage variance and whether it is favorable or unfavorable.
C. Determine the labor rate variance and whether it is favorable or unfavorable.
D. Determine the labor efficiency variance and whether it is favorable or unfavorable.
229. Allison Company adopted a standard cost system several years ago. The standard costs for the prime costs of its
single product follow:
Material: 10 kilograms @ $4.50 per kilogram $45.00
Labor: 6 hours @ $8.50 per hour $51.00
The following operating data were taken from the records for November:
1. Units completed: 5,800 units
2. Budgeted output: 6,000 units
3. Materials purchased: 60,000 kilograms
4. Total actual labor costs: $306,600
5. Actual hours of labor: 36,500 hours
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6. Material usage variance: $2,250 U
7. Total material variance: $450 U
Compute the following:
A. Labor rate variance
B. Labor efficiency variance
C. Actual kilograms of material used in the production process
D. Actual cost paid per kilogram of material
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230. Gardener’s Market manufactures hedgers. During the year, it manufactured 5,000 hedgers, using 4.2 hours of direct
labor per hedger at a rate of $8. The materials and labor standards for manufacturing the hedgers are:
Direct materials (10 units @ $2) $20
Direct labor (4 hours @ $7.50 per hour) 30
Gardener’s Market actually purchased and used 53,000 units of direct materials at a price of $2.25 per unit.
Required:
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A. Determine the materials price variance and whether it is favorable or unfavorable.
B. Determine the materials usage variance and whether it is favorable or unfavorable.
C. Determine the labor rate variance and whether it is favorable or unfavorable.
D. Determine the labor efficiency variance and whether it is favorable or unfavorable.
231. Rhodes Corporation manufactures a product with the following standard costs:
Direct materials (20 yards @ $1.85 per yard) $37.00
Direct labor (4 hours @ $12.00 per hour) 48.00
Standards are based on normal monthly production involving 2,000 direct labor hours (500 units of output).
The following information pertains to July:
Direct materials purchased (16,000 yards @ $1.80 per yard) $28,800
Direct materials used (9,400 yards)
Direct labor (1,880 hours @ $12.20 per hour) 22,936
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Actual production in July: 460 units
Required:
A. Compute the following variances for the month of July, indicating whether each variance is favorable or
unfavorable:
1. Materials purchase price variance
2. Materials usage variance
3. Labor rate variance
4. Labor efficiency variance
B. Give potential reasons for each of the variances. Be sure to consider inter-relationships among variances.
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232. Dog’s Best Friend manufactures dog food. During the month, it manufactured 3,000 bags of kibble, using 0.25 hour
of direct labor per bag at a rate of $9.00 per hour. The materials and labor standards for manufacturing the bags of kibble
are:
Direct materials (1 pound of beef @ $1.00 per pound) $1.00
Direct materials (1 bag @ $0.25) 0.25
Direct labor (0.30 hour @ $9.00) 2.70
The company actually used 3,300 pounds of beef at a price of $1.10 per pound. It also purchased 3,000 bags at a price of
$0.15 per bag.
A. Determine the total materials price variance and whether it is favorable or unfavorable.
B. Determine the materials usage variance for beef and whether it is favorable or unfavorable.
C. Determine the labor rate variance and whether it is favorable or unfavorable.
D. Determine the labor efficiency variance and whether it is favorable or unfavorable.
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233. Mersey Company produced 1,000 trash cans during March using 450 direct labor hours and purchased and used
3,100 pounds of rubber. Its materials and labor standards are:
Direct materials (3 pounds of rubber @ $0.50) $1.50
Direct labor (0.5 hours @ $16.00) 3.00
Its materials price variance was a favorable $620 and its labor rate variance was an unfavorable $900.
A. Calculate the actual price per unit.
B. Calculate the actual labor rate.
C. Determine the materials usage variance and whether it is favorable or unfavorable.
D. Determine the labor efficiency variance and whether it is favorable or unfavorable.
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234. Pontefract Company produced 2,500 widgets during November using 4,000 units of materials at a cost of $5.00 each.
It also used 5,000 direct labor hours at a rate of $7.00. Its direct materials standard is 2 units per widget. Its direct labor
standard is 2.5 hours per widget.
Its materials price variance was a favorable $8,000 and its labor rate variance was an unfavorable $1,000.
A. Calculate the standard materials price per unit.
B. Calculate the standard labor rate.
C. Determine the materials usage variance and whether it is favorable or unfavorable.
D. Determine the labor efficiency variance and whether it is favorable or unfavorable.
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235. Just Right Inc. produces jeans. The following standards have been established:
Direct materials (4 yards of denim @ $1.20) $ 4.80
Direct labor (1.5 hours @ $9) 13.50
Standard prime cost $18.30
During the year 25,000 pairs of jeans were produced. 150,000 yards of denim were purchased and used at $1.23 per yard.
Actual direct labor hours were 36,800 at $9.25 per hour.
Required:
A. Compute the materials variances and indicate if they are favorable or unfavorable.
B. Compute the labor variances and indicate if they are favorable or unfavorable.
C. Prepare the journal entries for the following:
Purchase of raw materials
Issuance of raw materials
Addition of labor to Work in Process
Closing of variances to Cost of Goods Sold
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236. During April, Rain Gear Unlimited produced 5,500 umbrellas from nylon that costs $0.45 per yard, which is $0.05
cheaper than the standard cost. It also used 3,000 direct labor hours at a rate of $6.50. Its direct materials standard is 1
yard per umbrella. Its direct labor standard is 0.5 hour per umbrella.
Its materials usage variance was a favorable $500 and its labor rate variance was a favorable $900.
A. Calculate the actual quantity of materials.
B. Calculate the standard labor rate.
C. Determine the materials price variance and whether it is favorable or unfavorable.
D. Determine the labor efficiency variance and whether it is favorable or unfavorable.
E. Record the entries for the materials purchase, the issuance and usage of materials, and the labor variances.
F. Provide the closing entries.