Chapter 14, Problem 26E

1.

To determine

Calculate the purchase-price variance for aluminum and state whether the variance is favorable (F) or unfavorable (U).

Explanation of Solution

Calculate the purchase-price variance for aluminum and state whether the variance is favorable (F) or unfavorable (U).

$\begin{array}{c}\text{Purchase-price}\text{variance}\text{=}\left[\begin{array}{l}\left(\text{Purchase}\text{price}\text{of}\text{aluminum}-\text{Standard}\text{cost}\text{rate}\text{per}\text{aluminum}\right)\text{×}\\ \text{Total}\text{lbs}\text{of}\text{aluminum}\text{purchased}\end{array}\right]\\ \text{=}\left[\left(\text{\$28}\text{.50}-\text{\$25}\text{per}\text{lb}\right)\text{×}\text{3,430}\text{lbs}\text{.}\right]\\ \text{=}\text{\$12,005U}\end{array}$

Working note:

(1) Calculate total pounds of aluminum purchased:

$\begin{array}{c}\begin{array}{l}\text{Total}\text{lbs}\text{of}\\ \text{aluminium}\text{purchased}\end{array}\}\text{=}\left[\begin{array}{l}\left(\text{lbs}\text{used+}\text{Ending}\text{inventory}\right)\\ -\text{Beginning}\text{inventory}\end{array}\right]\\ \text{=}\left[\left(\text{3,450+30}\right)-\text{50}\right]\\ \text{=}\text{3,430}\text{pounds}\end{array}$

2.

To determine

Calculate the usage variance for aluminum and state whether the variance is favorable (F) or unfavorable (U).

Explanation of Solution

Calculate the usage variance for aluminum and state whether the variance is favorable (F) or unfavorable (U).

$\begin{array}{c}\text{Usage}\text{variance}\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Pounds}\text{of}\text{aluminum}\text{used}-\\ \text{Standard}\text{lbs}\text{.}\text{of}\text{aluminum}\\ \text{allowed}\text{for}\text{the}\text{units}\text{manufactured}\end{array}\right)\\ \text{×}\text{standard}\text{cost}\text{rate}\text{per}\text{aluminum}\end{array}\right]\\ \text{=}\left(\text{3,450}-\text{3,680}\text{lbs}\right)\text{×}\text{\$25}\text{per}\text{lb}\text{.}\\ \text{=}\text{\$5,750F}\end{array}$

Working note:

(2) Calculate standard pounds of aluminum allowed for the units manufactured:

$\begin{array}{c}\begin{array}{l}\text{Standard}\text{lbs}\text{.}\text{of}\text{aluminum}\\ \text{allowed}\text{for}\text{the}\text{units}\text{manufactured}\end{array}\}\text{=}\left(\begin{array}{l}\text{Number}\text{of}\text{units}\text{manufactured}\text{×}\\ \text{Standard}\text{quantity}\text{of}\text{aluminum}\end{array}\right)\\ \text{=}\text{920}\text{units}\text{×}\text{4}\text{pounds}\text{per}\text{unit}\\ \text{=}\text{3,680}\text{pounds}\end{array}$

3.

To determine

Calculate the direct labor variance and state whether the variance is favorable (F) or unfavorable (U).

Explanation of Solution

Calculate the direct labor variance and state whether the variance is favorable (F) or unfavorable (U).

$\begin{array}{c}\text{Direct}\text{labor}\text{variance}\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Average}\text{cost}\text{per}\text{hour}-\\ \text{Standard}\text{direct}\text{labor}\text{rate}\text{per}\text{hour}\end{array}\right)\\ \text{×}\text{Direct}\text{labor}\text{hours}\text{used}\end{array}\right]\\ \text{=}\left[\left(\text{\$41}\text{.50}-\text{\$40}\text{per}\text{hr}\right)\text{×}\text{4,200}\text{hrs}\text{.}\right]\\ \text{=}\text{\$6,300U}\end{array}$

4.

To determine

Calculate the direct labor efficiency variance and state whether the variance is favorable (F) or unfavorable (U).

Explanation of Solution

Calculate the direct labor efficiency variance and state whether the variance is favorable (F) or unfavorable (U).

$\begin{array}{c}\text{Direct}\text{labor}\text{efficiency}\text{variance=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Direct}\text{labor}\text{hours}\text{used}-\text{Standard}\text{direct}\text{labor}\text{hours}\\ \text{allowed}\text{for}\text{the}\text{units}\text{manufactured}\end{array}\right)\\ \text{×}\text{Standard}\text{direct}\text{labor}\text{per}\text{hour}\end{array}\right]\\ \text{=}\left(\text{4,200}-\text{4,600}\text{hrs}\right)\text{×}\text{\$40}\text{per}\text{hr}\\ \text{=}\text{\$16,000F}\end{array}$

Working note:

(3) Calculate standard direct labor hours (DLHs) allowed for the units manufactured:

$\begin{array}{c}\begin{array}{l}\text{Standard direct labor hours }\left(\text{DLHs}\right)\\ \text{allowed for the units manufactured}\end{array}\}\text{=}\left(\begin{array}{l}\text{Units}\text{manufactured}\text{×}\\ \text{Standard}\text{variable}\text{factory}\text{overhead}\end{array}\right)\\ \text{=}\text{920}\text{units}\text{×}\text{5}\text{hours}\text{per}\text{unit}\\ \text{=}\text{4,600}\text{hours}\end{array}$