Perkins Processors Inc. produces an average of 10,000 units each month. The factory standards are 20,000 hours of direct labor and 10,000 pounds of materials for this volume. The standard cost of direct labor is $9.00 per hour, and the standard cost of materials is $4.00 per pound. The standard factory overhead at this level of production is $20,000.
During the current month the production and cost reports reflected the following information:
Beginning units in process. . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Units finished. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,500
Units in process, end of month . . . . . . . . . . . . . . . . . . . . . . . . None
Direct labor hours worked . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Pounds of material purchased . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Pounds of materials used. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,400
Cost of direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $178,000
Cost of materials purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . $42,000
On the basis of this information:
1. Prepare a standard cost summary.
2. Calculate the materials (use the materials purchase price variance) and labor cost variances, and indicate whether they are favorable or unfavorable, using the formulas on pages 421–422 and 424.