Describe two methods of setting standards (Hilton, p. 479, 9-3) (2) (a) During June, Spenc
(1) Describe two methods of setting standards (Hilton, p. 479, 9-3)
(2) (a) During June, Spencer Company’s material purchases amounted to 6,000 pounds at a price of $7.30 per pound. Actual costs incurred in the production of 2,000 units were as follows:
Direct Labour: $116,745 ($18.10 per hour)
Direct Materials: $ 30,660 ($ 7.30 per pound)
The standards for one unit of Spencer Company’s product are as follows:
Direct Labour Direct Material
Quantity, 3 hours per unit Quantity, 2 pounds per unit
Rate, $18 per hour Price, $7 per pound
REQUIRED: Compute the direct-material price and quantity variances and the direct-labor rate and efficiency variances. Indicate whether each variance is favourable or unfavourable.
(b) Refer to the data in the preceding exercise. Draw diagrams depicting the direct-material and direct-labour variances similar to the diagrams in Figures 6.1 and 6.2.
(3) Athena Can Company manufactures recyclable soft-drink cans. A unit of production is a case of 12 dozen cans. The following standards have been set by the production-engineering staff and the controller.
Direct Labour: Direct Material:
Quantity .25 hour Quantity, 4 kilograms
Rate, $16 per hour Price, $0.80 per kilogram
Actual material purchases amounted to 240,000 kilograms at $.81 per kilogram.
Actual costs incurred in the production of 50,000 units were as follows:
Direct Labour: $211,900 for 13,000 hours
Direct Material: $170,100 for 210,000 kilograms
Required:
(a) Use the variance formulas to compute the direct-material price and quantity variances and the direct-labour rate and efficiency variances. Indicate whether each variance is favourable or unfavourable.
(b) Refer to the data in the preceding exercise. Use diagrams similar to those in Figures 6.1 and 6.2 to determine the direct-material and direct-labour variances. Indicate whether each variance is favourable or unfavourable.
Step by step
Solved in 2 steps
