Direct Material Price Variance: The variance which is caused by the difference between the actual price per unit incurred and the expected price per unit to be incurred on the direct material is called the direct material price variance. Direct Material Quantity Variance: At the standard price, the difference between the actual quantity and standard quantity is termed as direct material quantity variance. The quantity variance measures the efficiency of management in utilizing the direct material for the production. Direct Labor Rate Variance: The difference between the actual rate per direct labor hour and standard rate per direct labor hours at the actual labor hour is called the direct labor rate variance. It measures the variance due the changes in the rate of direct labor hour. Direct Labor Efficiency Variance: The variance which is caused by the difference between the actual labor hours and standard labor hours allowed per unit is called the direct labor efficiency variance. It is computed by deducting the standard cost of direct labor from the standard cost at actual direct labor hour. To determine : 1. Computation of direct material price and quantity variances 2. Computation of direct labor rate and efficiency variances Indicate the variances as favorable and unfavorable

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Answer 1

Question

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.

Chapter 23, Problem 12E

To determine

Direct Material Price Variance:

The variance which is caused by the difference between the actual price per unit incurred and the expected price per unit to be incurred on the direct material is called the direct material price variance.

Direct Material Quantity Variance:

At the standard price, the difference between the actual quantity and standard quantity is termed as direct material quantity variance. The quantity variance measures the efficiency of management in utilizing the direct material for the production.

Direct Labor Rate Variance:

The difference between the actual rate per direct labor hour and standard rate per direct labor hours at the actual labor hour is called the direct labor rate variance. It measures the variance due the changes in the rate of direct labor hour.

Direct Labor Efficiency Variance:

The variance which is caused by the difference between the actual labor hours and standard labor hours allowed per unit is called the direct labor efficiency variance. It is computed by deducting the standard cost of direct labor from the standard cost at actual direct labor hour.

To determine:

1. Computation of direct material price and quantity variances

2. Computation of direct labor rate and efficiency variances

Indicate the variances as favorable and unfavorable

Expert Solution & Answer

Answer to Problem 12E

Solution:

1. Reed Corporation has favorable variance of $4,600 in direct material price and unfavorable variance of $6,000 in direct material quantity.

2. The company has unfavorable variance in both direct labor rate and efficiency with $940 and $9,600 respectively.

Explanation of Solution

Explanation:

1. Direct material price and quantity variance

$\begin{array}{l} D i r e c t M a t e r i a l P r i c e V a r i a n c e = A c t u a l Q u a n t i t y X (A c t u a l P r i c e - S t a n d a r d P r i c e) \\ = 92, 000 l b s . X ($ 2.95 - $ 3.00) \\ = 92, 000 l b s . X $ 0.05 \\ \begin{array}{l} = $ 4, 600 F a v o r a b l e \end{array} \\ D i r e c t M a t e r i a l Q u a n t i t y V a r i a n c e = S t a n d a r d P r i c e X (A c t u a l Q u a n t i t y - S t a n d a r d Q u a n t i t y) \\ = $ 3.00 X (92, 000 l b s . - 90, 000 l b s .) \\ \begin{array}{l} = $ 6, 000 U n f a v o r a b l e \end{array} \\ * S t a n d a r d Q u a n t i t y = D i r e c t m a t e r i a l a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 10 l b s . X 9, 000 u n i t s \\ = 90, 000 l b s . \end{array}$

2. Direct labor rate and efficiency variance

$\begin{array}{l} D i r e c t L a b o r R a t e V a r i a n c e = A c t u a l H o u r s X (A c t u a l R a t e - S t a n d a r d R a t e) \\ = 18, 800 h o u r s X ($ 12.05 - $ 12.00) \\ = 18, 800 h o u r s X $ 0.05 \\ = $ 940 U n f a v o r a b l e \\ D i r e c t L a b o r E f f i c i e n c y V a r i a n c e = S t a n d a r d R a t e X (A c t u a l H o u r s - S t a n d a r d H o u r s) \\ = $ 12.00 X (18, 800 h o u r s - 18, 000 h o u r s) \\ = $ 12.00 X 800 h o u r s \\ = $ 9, 600 U n f a v o r a b l e \\ * S t a n d a r d H o u r s = D i r e c t l a b o r h o u r s a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 2 h o u r s X 9, 000 u n i t s \\ = 18, 000 h o u r s \end{array}$

Conclusion

Conclusion:

The direct material price variance is favorable and the quantity is unfavorable.

The both direct labor rate and efficiency variances are unfavorable.

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Answer 2

Question

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.

Chapter 23, Problem 12E

To determine

Direct Material Price Variance:

The variance which is caused by the difference between the actual price per unit incurred and the expected price per unit to be incurred on the direct material is called the direct material price variance.

Direct Material Quantity Variance:

At the standard price, the difference between the actual quantity and standard quantity is termed as direct material quantity variance. The quantity variance measures the efficiency of management in utilizing the direct material for the production.

Direct Labor Rate Variance:

The difference between the actual rate per direct labor hour and standard rate per direct labor hours at the actual labor hour is called the direct labor rate variance. It measures the variance due the changes in the rate of direct labor hour.

Direct Labor Efficiency Variance:

The variance which is caused by the difference between the actual labor hours and standard labor hours allowed per unit is called the direct labor efficiency variance. It is computed by deducting the standard cost of direct labor from the standard cost at actual direct labor hour.

To determine:

1. Computation of direct material price and quantity variances

2. Computation of direct labor rate and efficiency variances

Indicate the variances as favorable and unfavorable

Expert Solution & Answer

Answer to Problem 12E

Solution:

1. Reed Corporation has favorable variance of $4,600 in direct material price and unfavorable variance of $6,000 in direct material quantity.

2. The company has unfavorable variance in both direct labor rate and efficiency with $940 and $9,600 respectively.

Explanation of Solution

Explanation:

1. Direct material price and quantity variance

$\begin{array}{l} D i r e c t M a t e r i a l P r i c e V a r i a n c e = A c t u a l Q u a n t i t y X (A c t u a l P r i c e - S t a n d a r d P r i c e) \\ = 92, 000 l b s . X ($ 2.95 - $ 3.00) \\ = 92, 000 l b s . X $ 0.05 \\ \begin{array}{l} = $ 4, 600 F a v o r a b l e \end{array} \\ D i r e c t M a t e r i a l Q u a n t i t y V a r i a n c e = S t a n d a r d P r i c e X (A c t u a l Q u a n t i t y - S t a n d a r d Q u a n t i t y) \\ = $ 3.00 X (92, 000 l b s . - 90, 000 l b s .) \\ \begin{array}{l} = $ 6, 000 U n f a v o r a b l e \end{array} \\ * S t a n d a r d Q u a n t i t y = D i r e c t m a t e r i a l a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 10 l b s . X 9, 000 u n i t s \\ = 90, 000 l b s . \end{array}$

2. Direct labor rate and efficiency variance

$\begin{array}{l} D i r e c t L a b o r R a t e V a r i a n c e = A c t u a l H o u r s X (A c t u a l R a t e - S t a n d a r d R a t e) \\ = 18, 800 h o u r s X ($ 12.05 - $ 12.00) \\ = 18, 800 h o u r s X $ 0.05 \\ = $ 940 U n f a v o r a b l e \\ D i r e c t L a b o r E f f i c i e n c y V a r i a n c e = S t a n d a r d R a t e X (A c t u a l H o u r s - S t a n d a r d H o u r s) \\ = $ 12.00 X (18, 800 h o u r s - 18, 000 h o u r s) \\ = $ 12.00 X 800 h o u r s \\ = $ 9, 600 U n f a v o r a b l e \\ * S t a n d a r d H o u r s = D i r e c t l a b o r h o u r s a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 2 h o u r s X 9, 000 u n i t s \\ = 18, 000 h o u r s \end{array}$

Conclusion

Conclusion:

The direct material price variance is favorable and the quantity is unfavorable.

The both direct labor rate and efficiency variances are unfavorable.

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Answer 3

Question

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.

Chapter 23, Problem 12E

To determine

Direct Material Price Variance:

The variance which is caused by the difference between the actual price per unit incurred and the expected price per unit to be incurred on the direct material is called the direct material price variance.

Direct Material Quantity Variance:

At the standard price, the difference between the actual quantity and standard quantity is termed as direct material quantity variance. The quantity variance measures the efficiency of management in utilizing the direct material for the production.

Direct Labor Rate Variance:

The difference between the actual rate per direct labor hour and standard rate per direct labor hours at the actual labor hour is called the direct labor rate variance. It measures the variance due the changes in the rate of direct labor hour.

Direct Labor Efficiency Variance:

The variance which is caused by the difference between the actual labor hours and standard labor hours allowed per unit is called the direct labor efficiency variance. It is computed by deducting the standard cost of direct labor from the standard cost at actual direct labor hour.

To determine:

1. Computation of direct material price and quantity variances

2. Computation of direct labor rate and efficiency variances

Indicate the variances as favorable and unfavorable

Expert Solution & Answer

Answer to Problem 12E

Solution:

1. Reed Corporation has favorable variance of $4,600 in direct material price and unfavorable variance of $6,000 in direct material quantity.

2. The company has unfavorable variance in both direct labor rate and efficiency with $940 and $9,600 respectively.

Explanation of Solution

Explanation:

1. Direct material price and quantity variance

$\begin{array}{l} D i r e c t M a t e r i a l P r i c e V a r i a n c e = A c t u a l Q u a n t i t y X (A c t u a l P r i c e - S t a n d a r d P r i c e) \\ = 92, 000 l b s . X ($ 2.95 - $ 3.00) \\ = 92, 000 l b s . X $ 0.05 \\ \begin{array}{l} = $ 4, 600 F a v o r a b l e \end{array} \\ D i r e c t M a t e r i a l Q u a n t i t y V a r i a n c e = S t a n d a r d P r i c e X (A c t u a l Q u a n t i t y - S t a n d a r d Q u a n t i t y) \\ = $ 3.00 X (92, 000 l b s . - 90, 000 l b s .) \\ \begin{array}{l} = $ 6, 000 U n f a v o r a b l e \end{array} \\ * S t a n d a r d Q u a n t i t y = D i r e c t m a t e r i a l a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 10 l b s . X 9, 000 u n i t s \\ = 90, 000 l b s . \end{array}$

2. Direct labor rate and efficiency variance

$\begin{array}{l} D i r e c t L a b o r R a t e V a r i a n c e = A c t u a l H o u r s X (A c t u a l R a t e - S t a n d a r d R a t e) \\ = 18, 800 h o u r s X ($ 12.05 - $ 12.00) \\ = 18, 800 h o u r s X $ 0.05 \\ = $ 940 U n f a v o r a b l e \\ D i r e c t L a b o r E f f i c i e n c y V a r i a n c e = S t a n d a r d R a t e X (A c t u a l H o u r s - S t a n d a r d H o u r s) \\ = $ 12.00 X (18, 800 h o u r s - 18, 000 h o u r s) \\ = $ 12.00 X 800 h o u r s \\ = $ 9, 600 U n f a v o r a b l e \\ * S t a n d a r d H o u r s = D i r e c t l a b o r h o u r s a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 2 h o u r s X 9, 000 u n i t s \\ = 18, 000 h o u r s \end{array}$

Conclusion

Conclusion:

The direct material price variance is favorable and the quantity is unfavorable.

The both direct labor rate and efficiency variances are unfavorable.

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Answer 4

Question

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.

Chapter 23, Problem 12E

To determine

Direct Material Price Variance:

The variance which is caused by the difference between the actual price per unit incurred and the expected price per unit to be incurred on the direct material is called the direct material price variance.

Direct Material Quantity Variance:

At the standard price, the difference between the actual quantity and standard quantity is termed as direct material quantity variance. The quantity variance measures the efficiency of management in utilizing the direct material for the production.

Direct Labor Rate Variance:

The difference between the actual rate per direct labor hour and standard rate per direct labor hours at the actual labor hour is called the direct labor rate variance. It measures the variance due the changes in the rate of direct labor hour.

Direct Labor Efficiency Variance:

The variance which is caused by the difference between the actual labor hours and standard labor hours allowed per unit is called the direct labor efficiency variance. It is computed by deducting the standard cost of direct labor from the standard cost at actual direct labor hour.

To determine:

1. Computation of direct material price and quantity variances

2. Computation of direct labor rate and efficiency variances

Indicate the variances as favorable and unfavorable

Expert Solution & Answer

Answer to Problem 12E

Solution:

1. Reed Corporation has favorable variance of $4,600 in direct material price and unfavorable variance of $6,000 in direct material quantity.

2. The company has unfavorable variance in both direct labor rate and efficiency with $940 and $9,600 respectively.

Explanation of Solution

Explanation:

1. Direct material price and quantity variance

$\begin{array}{l} D i r e c t M a t e r i a l P r i c e V a r i a n c e = A c t u a l Q u a n t i t y X (A c t u a l P r i c e - S t a n d a r d P r i c e) \\ = 92, 000 l b s . X ($ 2.95 - $ 3.00) \\ = 92, 000 l b s . X $ 0.05 \\ \begin{array}{l} = $ 4, 600 F a v o r a b l e \end{array} \\ D i r e c t M a t e r i a l Q u a n t i t y V a r i a n c e = S t a n d a r d P r i c e X (A c t u a l Q u a n t i t y - S t a n d a r d Q u a n t i t y) \\ = $ 3.00 X (92, 000 l b s . - 90, 000 l b s .) \\ \begin{array}{l} = $ 6, 000 U n f a v o r a b l e \end{array} \\ * S t a n d a r d Q u a n t i t y = D i r e c t m a t e r i a l a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 10 l b s . X 9, 000 u n i t s \\ = 90, 000 l b s . \end{array}$

2. Direct labor rate and efficiency variance

$\begin{array}{l} D i r e c t L a b o r R a t e V a r i a n c e = A c t u a l H o u r s X (A c t u a l R a t e - S t a n d a r d R a t e) \\ = 18, 800 h o u r s X ($ 12.05 - $ 12.00) \\ = 18, 800 h o u r s X $ 0.05 \\ = $ 940 U n f a v o r a b l e \\ D i r e c t L a b o r E f f i c i e n c y V a r i a n c e = S t a n d a r d R a t e X (A c t u a l H o u r s - S t a n d a r d H o u r s) \\ = $ 12.00 X (18, 800 h o u r s - 18, 000 h o u r s) \\ = $ 12.00 X 800 h o u r s \\ = $ 9, 600 U n f a v o r a b l e \\ * S t a n d a r d H o u r s = D i r e c t l a b o r h o u r s a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 2 h o u r s X 9, 000 u n i t s \\ = 18, 000 h o u r s \end{array}$

Conclusion

Conclusion:

The direct material price variance is favorable and the quantity is unfavorable.

The both direct labor rate and efficiency variances are unfavorable.

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Answer 5

Chapter 23, Problem 12E

To determine

Direct Material Price Variance:

The variance which is caused by the difference between the actual price per unit incurred and the expected price per unit to be incurred on the direct material is called the direct material price variance.

Direct Material Quantity Variance:

At the standard price, the difference between the actual quantity and standard quantity is termed as direct material quantity variance. The quantity variance measures the efficiency of management in utilizing the direct material for the production.

Direct Labor Rate Variance:

The difference between the actual rate per direct labor hour and standard rate per direct labor hours at the actual labor hour is called the direct labor rate variance. It measures the variance due the changes in the rate of direct labor hour.

Direct Labor Efficiency Variance:

The variance which is caused by the difference between the actual labor hours and standard labor hours allowed per unit is called the direct labor efficiency variance. It is computed by deducting the standard cost of direct labor from the standard cost at actual direct labor hour.

To determine:

1. Computation of direct material price and quantity variances

2. Computation of direct labor rate and efficiency variances

Indicate the variances as favorable and unfavorable

Expert Solution & Answer

Answer to Problem 12E

Solution:

1. Reed Corporation has favorable variance of $4,600 in direct material price and unfavorable variance of $6,000 in direct material quantity.

2. The company has unfavorable variance in both direct labor rate and efficiency with $940 and $9,600 respectively.

Explanation of Solution

Explanation:

1. Direct material price and quantity variance

$\begin{array}{l} D i r e c t M a t e r i a l P r i c e V a r i a n c e = A c t u a l Q u a n t i t y X (A c t u a l P r i c e - S t a n d a r d P r i c e) \\ = 92, 000 l b s . X ($ 2.95 - $ 3.00) \\ = 92, 000 l b s . X $ 0.05 \\ \begin{array}{l} = $ 4, 600 F a v o r a b l e \end{array} \\ D i r e c t M a t e r i a l Q u a n t i t y V a r i a n c e = S t a n d a r d P r i c e X (A c t u a l Q u a n t i t y - S t a n d a r d Q u a n t i t y) \\ = $ 3.00 X (92, 000 l b s . - 90, 000 l b s .) \\ \begin{array}{l} = $ 6, 000 U n f a v o r a b l e \end{array} \\ * S t a n d a r d Q u a n t i t y = D i r e c t m a t e r i a l a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 10 l b s . X 9, 000 u n i t s \\ = 90, 000 l b s . \end{array}$

2. Direct labor rate and efficiency variance

$\begin{array}{l} D i r e c t L a b o r R a t e V a r i a n c e = A c t u a l H o u r s X (A c t u a l R a t e - S t a n d a r d R a t e) \\ = 18, 800 h o u r s X ($ 12.05 - $ 12.00) \\ = 18, 800 h o u r s X $ 0.05 \\ = $ 940 U n f a v o r a b l e \\ D i r e c t L a b o r E f f i c i e n c y V a r i a n c e = S t a n d a r d R a t e X (A c t u a l H o u r s - S t a n d a r d H o u r s) \\ = $ 12.00 X (18, 800 h o u r s - 18, 000 h o u r s) \\ = $ 12.00 X 800 h o u r s \\ = $ 9, 600 U n f a v o r a b l e \\ * S t a n d a r d H o u r s = D i r e c t l a b o r h o u r s a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 2 h o u r s X 9, 000 u n i t s \\ = 18, 000 h o u r s \end{array}$

Conclusion

Conclusion:

The direct material price variance is favorable and the quantity is unfavorable.

The both direct labor rate and efficiency variances are unfavorable.

Answer 6

Chapter 23, Problem 12E

To determine

Direct Material Price Variance:

The variance which is caused by the difference between the actual price per unit incurred and the expected price per unit to be incurred on the direct material is called the direct material price variance.

Direct Material Quantity Variance:

At the standard price, the difference between the actual quantity and standard quantity is termed as direct material quantity variance. The quantity variance measures the efficiency of management in utilizing the direct material for the production.

Direct Labor Rate Variance:

The difference between the actual rate per direct labor hour and standard rate per direct labor hours at the actual labor hour is called the direct labor rate variance. It measures the variance due the changes in the rate of direct labor hour.

Direct Labor Efficiency Variance:

The variance which is caused by the difference between the actual labor hours and standard labor hours allowed per unit is called the direct labor efficiency variance. It is computed by deducting the standard cost of direct labor from the standard cost at actual direct labor hour.

To determine:

1. Computation of direct material price and quantity variances

2. Computation of direct labor rate and efficiency variances

Indicate the variances as favorable and unfavorable

Expert Solution & Answer

Answer to Problem 12E

Solution:

1. Reed Corporation has favorable variance of $4,600 in direct material price and unfavorable variance of $6,000 in direct material quantity.

2. The company has unfavorable variance in both direct labor rate and efficiency with $940 and $9,600 respectively.

Explanation of Solution

Explanation:

1. Direct material price and quantity variance

$\begin{array}{l} D i r e c t M a t e r i a l P r i c e V a r i a n c e = A c t u a l Q u a n t i t y X (A c t u a l P r i c e - S t a n d a r d P r i c e) \\ = 92, 000 l b s . X ($ 2.95 - $ 3.00) \\ = 92, 000 l b s . X $ 0.05 \\ \begin{array}{l} = $ 4, 600 F a v o r a b l e \end{array} \\ D i r e c t M a t e r i a l Q u a n t i t y V a r i a n c e = S t a n d a r d P r i c e X (A c t u a l Q u a n t i t y - S t a n d a r d Q u a n t i t y) \\ = $ 3.00 X (92, 000 l b s . - 90, 000 l b s .) \\ \begin{array}{l} = $ 6, 000 U n f a v o r a b l e \end{array} \\ * S t a n d a r d Q u a n t i t y = D i r e c t m a t e r i a l a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 10 l b s . X 9, 000 u n i t s \\ = 90, 000 l b s . \end{array}$

2. Direct labor rate and efficiency variance

$\begin{array}{l} D i r e c t L a b o r R a t e V a r i a n c e = A c t u a l H o u r s X (A c t u a l R a t e - S t a n d a r d R a t e) \\ = 18, 800 h o u r s X ($ 12.05 - $ 12.00) \\ = 18, 800 h o u r s X $ 0.05 \\ = $ 940 U n f a v o r a b l e \\ D i r e c t L a b o r E f f i c i e n c y V a r i a n c e = S t a n d a r d R a t e X (A c t u a l H o u r s - S t a n d a r d H o u r s) \\ = $ 12.00 X (18, 800 h o u r s - 18, 000 h o u r s) \\ = $ 12.00 X 800 h o u r s \\ = $ 9, 600 U n f a v o r a b l e \\ * S t a n d a r d H o u r s = D i r e c t l a b o r h o u r s a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 2 h o u r s X 9, 000 u n i t s \\ = 18, 000 h o u r s \end{array}$

Conclusion

Conclusion:

The direct material price variance is favorable and the quantity is unfavorable.

The both direct labor rate and efficiency variances are unfavorable.

Answer 7

Chapter 23, Problem 12E

To determine

Direct Material Price Variance:

The variance which is caused by the difference between the actual price per unit incurred and the expected price per unit to be incurred on the direct material is called the direct material price variance.

Direct Material Quantity Variance:

At the standard price, the difference between the actual quantity and standard quantity is termed as direct material quantity variance. The quantity variance measures the efficiency of management in utilizing the direct material for the production.

Direct Labor Rate Variance:

The difference between the actual rate per direct labor hour and standard rate per direct labor hours at the actual labor hour is called the direct labor rate variance. It measures the variance due the changes in the rate of direct labor hour.

Direct Labor Efficiency Variance:

The variance which is caused by the difference between the actual labor hours and standard labor hours allowed per unit is called the direct labor efficiency variance. It is computed by deducting the standard cost of direct labor from the standard cost at actual direct labor hour.

To determine:

1. Computation of direct material price and quantity variances

2. Computation of direct labor rate and efficiency variances

Indicate the variances as favorable and unfavorable

Answer 8

Expert Solution & Answer

Answer to Problem 12E

Solution:

1. Reed Corporation has favorable variance of $4,600 in direct material price and unfavorable variance of $6,000 in direct material quantity.

2. The company has unfavorable variance in both direct labor rate and efficiency with $940 and $9,600 respectively.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Explanation:

1. Direct material price and quantity variance

$\begin{array}{l} D i r e c t M a t e r i a l P r i c e V a r i a n c e = A c t u a l Q u a n t i t y X (A c t u a l P r i c e - S t a n d a r d P r i c e) \\ = 92, 000 l b s . X ($ 2.95 - $ 3.00) \\ = 92, 000 l b s . X $ 0.05 \\ \begin{array}{l} = $ 4, 600 F a v o r a b l e \end{array} \\ D i r e c t M a t e r i a l Q u a n t i t y V a r i a n c e = S t a n d a r d P r i c e X (A c t u a l Q u a n t i t y - S t a n d a r d Q u a n t i t y) \\ = $ 3.00 X (92, 000 l b s . - 90, 000 l b s .) \\ \begin{array}{l} = $ 6, 000 U n f a v o r a b l e \end{array} \\ * S t a n d a r d Q u a n t i t y = D i r e c t m a t e r i a l a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 10 l b s . X 9, 000 u n i t s \\ = 90, 000 l b s . \end{array}$

2. Direct labor rate and efficiency variance

$\begin{array}{l} D i r e c t L a b o r R a t e V a r i a n c e = A c t u a l H o u r s X (A c t u a l R a t e - S t a n d a r d R a t e) \\ = 18, 800 h o u r s X ($ 12.05 - $ 12.00) \\ = 18, 800 h o u r s X $ 0.05 \\ = $ 940 U n f a v o r a b l e \\ D i r e c t L a b o r E f f i c i e n c y V a r i a n c e = S t a n d a r d R a t e X (A c t u a l H o u r s - S t a n d a r d H o u r s) \\ = $ 12.00 X (18, 800 h o u r s - 18, 000 h o u r s) \\ = $ 12.00 X 800 h o u r s \\ = $ 9, 600 U n f a v o r a b l e \\ * S t a n d a r d H o u r s = D i r e c t l a b o r h o u r s a l l o w e d p e r u n i t X A c t u a l l e v e l o f p r o d u c t i o n \\ = 2 h o u r s X 9, 000 u n i t s \\ = 18, 000 h o u r s \end{array}$