The subsequent questions are based on the given data:
- Direct materials: standard, 5 pounds per unit at $2 per pound
- Direct labor: standard, 1/2 hour @ $16 per hour
Suppose the subsequent were the actual results for production of 8,500 units:
-Direct material: Dominion purchased and used 46,000 pounds at a real 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 a real hourly rate of $16.80 for a total actual cost of $69,300
1.) Evaluate the price and usage variances for direct labor and direct material.
2.) Assume the company is organized so that the purchasing manager bears the main responsibility for purchasing materials, and the production manager is liable for the use of materials. Suppose 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. Re-compute the material variances.