Direct labor ………………………………….40, 100 hr. at $14.60 per hr — New Jersey Valve Company manufactured 800 units during January control used milk

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

Required:

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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.

SOLUTION

1.	Schedule of standard production costs:	Schedule of standard production costs:	Schedule of standard production costs:
New Jersey Valve Company Camden Plant Schedule of Standard Production Costs Based on 7,800 Units For the Month of January
			Standard Costs
Direct material	Direct material	7,800 units 3 lbs. $2.50	$ 58,500
Direct labor	Direct labor	7,800 units 5 hrs. $15.00	585,000
Total standard production costs	Total standard production costs		$643,500

Variances:	Variances:	Variances:	Variances:	Variances:	Variances:	Variances:	Variances:	Variances:	Variances:
a.	Direct-material price variance	Direct-material price variance	Direct-material price variance	=	=	=	(PQ AP) – (PQ SP)	(PQ AP) – (PQ SP)	(PQ AP) – (PQ SP)
				=	=	=	(25,000 $2.60) – (25,000 $2.50)	(25,000 $2.60) – (25,000 $2.50)	(25,000 $2.60) – (25,000 $2.50)
				=	=	=	$2,500 Unfavorable	$2,500 Unfavorable	$2,500 Unfavorable
b.	Direct-material quantity variance	Direct-material quantity variance	Direct-material quantity variance	Direct-material quantity variance	Direct-material quantity variance	=	=	=	(AQ SP) – (SQ SP)
						=	=	=	(23,100 $2.50) – (23,400* $2.50)
						=	=	=	$750 Favorable
*7,800 units 3 lbs. per unit = 23,400 lb.	*7,800 units 3 lbs. per unit = 23,400 lb.	*7,800 units 3 lbs. per unit = 23,400 lb.	*7,800 units 3 lbs. per unit = 23,400 lb.	*7,800 units 3 lbs. per unit = 23,400 lb.	*7,800 units 3 lbs. per unit = 23,400 lb.	*7,800 units 3 lbs. per unit = 23,400 lb.	*7,800 units 3 lbs. per unit = 23,400 lb.	*7,800 units 3 lbs. per unit = 23,400 lb.	*7,800 units 3 lbs. per unit = 23,400 lb.
c.	Direct-labor rate variance	=	(AH AR) – (AH SR)	(AH AR) – (AH SR)	(AH AR) – (AH SR)	(AH AR) – (AH SR)	(AH AR) – (AH SR)	(AH AR) – (AH SR)	(AH AR) – (AH SR)
		=	(40,100 $14.60) – (40,100 $15.00)	(40,100 $14.60) – (40,100 $15.00)	(40,100 $14.60) – (40,100 $15.00)	(40,100 $14.60) – (40,100 $15.00)	(40,100 $14.60) – (40,100 $15.00)	(40,100 $14.60) – (40,100 $15.00)	(40,100 $14.60) – (40,100 $15.00)
		=	$16,040 Favorable	$16,040 Favorable	$16,040 Favorable	$16,040 Favorable	$16,040 Favorable	$16,040 Favorable	$16,040 Favorable
d.	Direct-labor efficiency variance	Direct-labor efficiency variance	Direct-labor efficiency variance	Direct-labor efficiency variance	=	=	=	(AH SR) – (SH SR)	(AH SR) – (SH SR)
					=	=	=	(40,100 $15.00) – (39,000* $15.00)	(40,100 $15.00) – (39,000* $15.00)
					=	=	=	$16,500 Unfavorable	$16,500 Unfavorable
*7,800 units 5 hours per unit = 39,000 hr.	*7,800 units 5 hours per unit = 39,000 hr.	*7,800 units 5 hours per unit = 39,000 hr.	*7,800 units 5 hours per unit = 39,000 hr.	*7,800 units 5 hours per unit = 39,000 hr.	*7,800 units 5 hours per unit = 39,000 hr.	*7,800 units 5 hours per unit = 39,000 hr.	*7,800 units 5 hours per unit = 39,000 hr.	*7,800 units 5 hours per unit = 39,000 hr.	*7,800 units 5 hours per unit = 39,000 hr.