Assume that Schmidt Machinery Company had the standard costs reflected in Exhibit 14.5. In a given month, the company used 3,470 pounds of aluminum to manufacture 935 units. The company paid $28.90 per pound during the month to purchase aluminum. At the beginning of the month, the company had 54 pounds of aluminum on hand. At the end of the month, the company had only 34 pounds of aluminum in its warehouse. Schmidt used 4,400 direct labor hours during the month, at an average cost of $41.90 per hour.

Required:
Compute for the month the following variances:
1. The purchase-price variance for aluminum. Indicate whether this variance is favorable (F) or unfavorable (U).
2. The usage variance for aluminum. Indicate whether this variance is favorable (F) or unfavorable (U).
3. The direct labor rate variance. Indicate whether this variance is favorable (F) or unfavorable (U).
4. The direct labor efficiency variance. Indicate whether this variance is favorable (F) or unfavorable (U).

1. $13,455 Unfavorable
2. $6,750 Favorable
3. $8,360 Unfavorable
4. $11,000 Favorable

1.
Purchase-price variance-Aluminum:
Total lbs. of aluminum purchased = lbs. used + ending inventory ? beginning inventory
= 3,470 + 34 ? 54 = 3,450 pounds

Purchase-price variance = ($28.90 ? $25.00) per lb. × 3,450 lbs. = $13,455U

2.
Usage variance-Aluminum:
Standard lbs. of aluminum allowed for the units manufactured:
= 935 units × 4 pounds per unit = 3,740 pounds

Usage variance: (3,470 ? 3,740) lbs. × $25 per lb. = $6,750F

3.
Direct labor rate variance: ($41.90 ? $40.00) per hr. × 4,400 hrs. = $8,360U

4.
Direct labor efficiency variance:
Standard direct labor hours (DLHs) allowed for the units manufactured: 935 units × 5 hours per unit = 4,675 hours

Efficiency variance: (4,400 ? 4,675) hrs. × $40.00 per hr. = $11,000F