Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials—X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis):

Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations, Sintering and Finishing. Each of the products uses two raw materials—X442 and Y661. The company uses a standard cost system, with the following standards for each product (on a per unit basis):


Information relating to materials purchased and materials used in production during May follows:
 

The following additional information is available:

1. The company recognizes price variances when materials are purchased.
2. The standard labor rate is $22.00 per hour in Sintering and $21.00 per hour in Finishing.
3. During May, 1,400 direct labor-hours were worked in Sintering at a total labor cost of $33,740, and 3,010 direct labor-hours were worked in Finishing at a total labor cost of $69,230.
4. Production during May was 2,200 Alpha6s and 1,000 Zeta7s.

Required:

1. Complete the standard cost card for each product, showing the standard cost of direct materials and direct labor.

2. Compute the materials price and quantity variances for each material.

3. Compute the labor rate and efficiency variances for each operation.

 

Explanation

2.

The computations to follow will require the standard quantities allowed for the actual output for each material.

Standard Quantity Allowed
Material X442:
Production of Alpha6 (3.0 kilos per unit × 2,200 units)	6,600	kilos
Production of Zeta7 (4.0 kilos per unit × 1,000 units)	4,000	kilos
Total	10,600	kilos
Material Y661:
Production of Alpha6 (2.5 liters per unit × 2,200 units)	5,500	liters
Production of Zeta7 (4.5 liters per unit × 1,000 units)	4,500	liters
Total	10,000	liters

Direct Materials Variances—Material X442:

Materials quantity variance = SP (AQ – SQ)

= $3.00 per kilo (10,100 kilos – 10,600 kilos)

= $1,500 F

Materials price variance = AQ (AP – SP)

= 15,600 kilos ($3.20 per kilo* – $3.00 per kilo)

= $3,120 U

*$49,920 ÷ 15,600 kilos = $3.20 per kilo

Direct Materials Variances—Material Y661:

Materials quantity variance = SP (AQ – SQ)

= $1.6 per liter (14,600 liters – 10,000 liters)

= $7,360 U

Materials price variance = AQ (AP – SP)

= 16,600 liters ($1.50 per liter* – $1.60 per liter)

= $1,660 F

*$24,900 ÷ 16,600 liters = $1.50 per liter

3.

The computations to follow will require the standard quantities allowed for the actual output for direct labor in each department.

Standard Hours Allowed
Sintering:
Production of Alpha6 (0.30 hours per unit × 2,200 units)	660	hours
Production of Zeta7 (0.30 hours per unit × 1,000 units)	300	hours
Total	960	hours
Finishing:
Production of Alpha6 (1.20 hours per unit × 2,200 units)	2,640	hours
Production of Zeta7 (0.70 hours per unit × 1,000 units)	700	hours
Total	3,340	hours

Direct Labor Variances—Sintering:

Labor efficiency variance = SR (AH – SH)

= $22.00 per hour (1,400 hours – 960 hours)

= $9,680 U

Labor rate variance = AH (AR – SR)

= 1,400 hours ($24.10 per hour* – $22.00 per hour)

= $2,940 U

*$33,740 ÷ 1,400 hours = $24.10 per hour

Direct Labor Variances—Finishing:

Labor efficiency variance = SR (AH – SH)

= $21.00 per hour (3,010 hours – 3,340 hours)

= $6,930 F

Labor rate variance = AH (AR – SR)

= 3,010 hours ($23.00 per hour* – $21.00 per hour)

= $6,020 U

*$69,230 ÷ 3,010 hours = $23.00 per hour

 

Thanks