Materials and Labor Variances. Hal’s Heating produces furnaces for commercial buildings. (This is the same company as the previous exercise. This exercise can be assigned independently.) For direct materials, the standard price for a heating element part is $40. A standard quantity of 3 heating elements is expected to be used in each furnace produced. During January, Hal’s Heating purchased 1,000 heating elements for $38,000 and used 980 heating elements to produce 320 furnaces. For direct labor, Hal’s Heating established a standard number of direct labor hours at 35 hours per furnace. The standard rate is $18 per hour. A total of 10,000 direct labor hours were worked during January, at a cost of $190,000, to produce 320 furnaces.
a. Calculate the materials price variance and materials quantity variance using the format shown in Figure 10.4 “Direct Materials Variance Analysis for Jerry’s Ice Cream”. Clearly label each variance as favorable or unfavorable.
b. Calculate the labor rate variance and labor efficiency variance using the format shown in Figure 10.6 “Direct Labor Variance Analysis for Jerry’s Ice Cream”. Clearly label each variance as favorable or unfavorable.