The Data Below Relate to a Product of Bellingham Company

question 52

Essay

The data below relate to a product of Bellingham Company.
$\begin{array}{lrr}\text { Standard costs: }\\ \text {Materials, 2 pounds at \( \$ 6 \) per pound } &\text { \( \$ 12 \) per unit } \\ \text { Labor, 3 hours at \( \$ 15 \) per hour } &\text { \( \$ 45 \) per unit} \\\\\text { Actual results were: } \\\text { Production } & 3,600 \text { unit } \\\text { Material purchased \& used, } 7,300 \text { pounds } & \$ 42,340 \\\text { Labor, } 10,360 \text { hours } & \$ 160,580 \end{array}$

Required:
(Be sure to indicate whether the variances are favorable or unfavorable and show your work.)
a. Compute the direct material price variance.
b. Compute the direct material usage variance.
c. Compute the direct labor rate variance.
d. Compute the direct labor efficiency variance.

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Definitions:

Trade or Business

An activity conducted for the purpose of earning income from selling goods or services, characterized by regularity and continuity.

Depreciation

The accounting process of allocating the cost of a tangible asset over its useful life, representing the decrease in value of the asset over time.

Section 1231

Refers to a tax provision in the United States that includes the tax treatment of gains and losses on the sale or exchange of real or depreciable property used in a trade or business and held for more than one year.

Ordinary Asset

An asset used in a business or trade which is subject to ordinary income tax rates rather than capital gains tax rates if sold or exchanged.