Question

Superior Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2016, using 143,000 square feet of extruded vinyl purchased at $1.30 per square foot. Production required 460 direct labor hours that cost $14.50 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of $1.35 per square foot. The labor standard was 0.028 direct labor hour per fender, at a standard cost of $13.50 per hour. Compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest Superior Fender's managers have been making trade-offs? Explain. Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance = Direct materials cost variance Direct labor cost variance Select the required formulas, compute the efficiency variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance Direct materials efficiency variance = Direct labor efficiency variance Does the pattern of variances suggest Superior Fender's managers have been making trade-offs? Explain. The Vdirect materials cost variance combined with the direct materials efficiency variance suggests that managers may have used V direct materials. The net effect on the total direct materials variance i The direct labor efficiency variance suggests that managers may have used workers who performed more efficiently. The net effect on the tota direct labor cost variance combined with the direct labor variance is

Answer 1

1. Direct Material Cost Variance

Formula = (AC - SC ) * AQ

= ($ 1.30 per sq. ft. - $ 1.35 per sq. ft.) * 143,000 sq. ft.

= $ 7,150 F

2.Direct Labor Cost Variance

Formula = (AC - SC ) * AQ

= ($14.50 per DLHr - $ 13.5 per DLHr) * 460 DLHr

= $ 460 U

3. Direct Material Efficiency Variance

Formula = (AQ - SQ ) * SC

= (143,000 sq. ft. - 140,000 sq. ft.) * $ 1.35 per sq. ft.

= $ 4,050 U

Standard Quantity is calculated as = 7 sq. feet per fender * 20,000 fenders = 140,000 standard sq. feet

4. Direct Labor Efficiency Variance

Formula = (AQ - SQ ) * SC

= ( 460 DLHr - 560 DLHr) * $13.5 per DLHr

= $ 1,350 F

Standard Quantity is calculated as = 0.028 DLHr per fender × 20,000 fenders = 560 standard DLHr

The $ 7,150 Favorable Direct Material Cost Variance combined with $ 4,050 Unfavorable Direct Material Efficiency variance suggest that manager may have used lower quality (less expensive) direct materials. The net effect on the total Direct Material Variance is $ 3,100 favorable (( $7,150 favorable direct materials cost variance minus the $4,050 unfavorable direct materials efficiency variance) .

The $ 460 Unfavorable Direct Labor Cost Variance combined with $ 1,350 Favorable Direct Labor Efficiency variance suggest that manager may have used skilled (higher paid) workers who perform more efficiently. The net effect on the total Direct Labor Variance is $ 890 favorable ($1,350 favorable direct labor efficiency variance minus the $460 unfavorable direct labor cost variance).