Exercise 14-26 Direct Materials and Direct Labor Variances [LO 14-3]

Assume that Schmidt Machinery Company had the standard costs reflected in Exhibit 14.5. In a given month, the company used 3,485 pounds of aluminum to manufacture 927 units. The company paid $29.20 per pound during the month to purchase aluminum. At the beginning of the month, the company had 57 pounds of aluminum on hand. At the end of the month, the company had only 37 pounds of aluminum in its warehouse. Schmidt used 4,550 direct labor hours during the month, at an average cost of $42.20 per hour.

Required:

Compute for the month the following variances:

1. The purchase-price variance for aluminum. Indicate whether this variance is favorable (F) or unfavorable (U).

2. The usage variance for aluminum. Indicate whether this variance is favorable (F) or unfavorable (U).

3. The direct labor rate variance. Indicate whether this variance is favorable (F) or unfavorable (U).

4. The direct labor efficiency variance. Indicate whether this variance is favorable (F) or unfavorable (U).

EXHIBIT 14.5 Standard Cost Sheet, Product XV-1 Subtotal Total SCHMIDT MACHINERY COMPANY Standard Cost Sheet Product: XV-1 Descriptions Quantity Cost Rate Direct materials: Aluminum 4 pounds $25/pound PVC 1 pound 40/pound Direct labor 5 hours 40/hour Variable factory overhead 5 hours 12/hour Total variable manufacturing cost Fixed factory overhead* 5 hours 24/hour Standard manufacturing cost per unit Standard variable selling and administrative cost per unit $100 40 200 60 $400 120 $520 $ 50 *Budgeted fixed factory overhead cost = $120,000