Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 39

Direct Materials and Direct Labor Variances Schmidt Machinery Company (Exhibit 14.5) used 3,375 pounds of aluminum in June to manufacture 900 units. The firm paid $30 per pound during the month to purchase aluminum. On June 1, the company had 50 pounds of aluminum on hand. At the end of June, the firm only had 25 pounds of aluminum in its warehouse. Schmidt spent 4,200 direct labor-hours in June, at an average cost of $42 per hour.

Required Compute for June, Schmidt Machinery Company’s

1. Purchase-price and usage variances for aluminum.

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2. Direct labor rate and efficiency variances.

Step 1 of 3

Material usage variance is the difference between the actual material usage at the budgeted price and the planned or budgeted material usage in production. Purchase price variance is the difference between the actual purchase price minus the budgeted purchase price multiplied by purchase quantity. F signifies that the result is favorable and U signifies that result is unfavorable.