Direct material and Direct labor Variance
New Jersey valve Company manufactured 7,800 units during January of a control valve used by milk processors in its Camden plant. Records indicated the following:
direct labor........................... 40,100 hr. at $14.60 per hr.
Direct material purchased.............. 25,000 lb. at $2.60 per lb.
Direct material used....................23,100 lb
The control valve has the following standard prime costs:
Direct material: 3 lb at $2.50 per lb.................. $ 7.50
Direct labor: 5 hr at $15.00 per hr.................. 75.00
Standard prime cost per unit............................$82.50
1. Prepare a schedule of standard production costs for January, based on actual production of 7,800 units.
2. For the month of January, compute the following variances, indicating whether each is favorable or unfavorable.
a. Direct-material price variance
b. Direct-material quantity variance
c. Direct-labor rate variance
d. Direct-labor efficiency variance
3. Build a spreadsheet: Construct an Excel spreadsheet to solve all of the preceding requirements. Show how the solution will change if the following information changes: the standard direct-labor rate is $16 per hour, and the standard direct-material price is $2.60 per pound.