Problem 2: Direct Cost Variance Analysis (30 points total)
Ken Co. uses standard costing for accounting. Following is the standards for production of its only product:
Direct material: 18 pounds at $25 per pound
Direct labor: 6 hours at $18 per hour.
During March company records showed the following:
Material purchased: 16,000 pounds at a cost of 352,000
Material used: 15,000 pounds
Direct labor hours: 4,700 hrs at a cost of $21.00 per hrs
Units produced: 800 units
- Compute the direct labor efficiency and price variances.
- Compute the direct material efficiency and price variances.
- Explain how a favorable direct material price variance may be related to an unfavorable direct material efficiency variance.