What is the labor rate variance

Question

McDaniel Company manufactures 100-pound bags of fertilizer that have the following unit standard costs for direct materials and direct labor:

Direct Materials (100 lbs. @ $1.00 per lb.) $100.00

Direct Labor (0.5 hours at $24 per hours ) $12.00

Total Standard prime Cost per 100 lb. bag $112.00

The following activities were recorder for October:

• 1,000 bags were manufactured.

• 95,000 lbs. of materials costing $76,000 were purchased.

• 102,500 lbs. of materials were used.

• $12,000 was paid for 475 hours of direct labor.

There were no beginning or ending work-in-process inventories.

Required:

A) Compute the direct material variances.

1. What is the Material Price Variance? Favorable or unfavorable?
2. What is the Material Usage Variance? Favorable or unfavorable? Show Work for each.

B) Compute the Direct Labor Variances.

1. What is the labor rate variance? Favorable or unfavorable?
2. What is the Labor efficiency variance? Favorable or unfavorable? Show work for each.

C) C. Give possible reasons for the occurrence of each of the preceding variances.