Problem - The following questions are based on the following data:
Direct materials: standard, 5 pounds per unit at $2 per pound
Direct labor: standard, 1/2 hour @ $16 per hour
Suppose the following were the actual results for production of 8,500 units:
Direct material: Dominion purchased and used 46,000 pounds at an actual unit price of $1.85 per pound, for an actual total cost of $85,100.
Direct labor: Dominion used 4,125 hours of labor at an actual hourly rate of $16.80 for a total actual cost of $69,300
1) Compute the price and usage variances for direct labor and direct material.
2) Suppose the company is organized so that the purchasing manager bears the primary responsibility for purchasing materials, and the production manager is responsible for the use of materials. Assume the same facts as in requirement 1 except that the purchasing manager bought 60,000 pounds of material. This means there is an ending inventory of 14,000 pounds of material. Recompute the material variances.