Answered: Hernandez Corporation uses a standard…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

Section: Chapter Questions

Problem 21E: Ellerson Company provided the following information for the last calendar year: During the year,...

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Question

Hernandez Corporation uses a standard cost system and has established the following standards for one unit of product:

During October, the company purchased 240,000 pounds of material at a total cost of $ \$ 588,000 $. The total factory wages for October were $ \$ 49,400 $. During October, 21,000 units of product were manufactured using 211,000 pounds of material and 5,200 direct labor hours. Material quantity and price variances are recorded when materials are used.

a. Compute the material quantity and labor efficiency variances.

b. Compute the material price and labor rate variances.

Show whether each of the above variances was either favorable or unfavorable.

Can you answer this in an excel format?

Hernandez Corporation uses a standard cost system and has established the following standards for one
unit of product:
Direct materials
Direct labor
Standard
Quantity
10 pounds
25 hour
Standard
Price
$2.60 per pound
$10.00 per hour
Standard
Cost
$26.00
2.50
$28.50
During October, the company purchased 240,000 pounds of material at a total cost of $588,000. The total
factory wages for October were $49,400. During October, 21,000 units of product were manufactured
using 211,000 pounds of material and 5,200 direct labor hours. Material quantity and price variances are
recorded when materials are used.
a. Compute the material quantity and labor efficiency variances.
b. Compute the material price and labor rate variances.
Show whether each of the above variances was either favorable or unfavorable.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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