Question

B mass-produces chairs for children, The chairs can be purchased in a variety of colors, but online basic design. The chairs are wildly popular, especially with young, highly educated parents. The design is the key to the company's success, and there seems to be no end to the demand for their products. The following data were extracted from the company's standard cost sheet:

Plastic 10 pounds at $4.50 per pound

Molding 3 feet at $3.00 per foot

Direct 4 hours at $6.00 per hour

Variable Overhead $3 per direct labor hour

Fixed Overhead $ 55,000 per period

Transactions during the month of June were as follows:

B purchased plastic at $4.45 per pound and issued 185,000 pounds to production

B purchased molding at $3.10 per foot and issued 50,000 feet to production

The direct labor payroll totaled $435,000 for 72,500 hours

Total overhead costs were $275,000 including $221,125 of variable overhead

B produced 18,000 chairs during the month

Required:

1. Calculate all material, labor, variable overhead, and fixed overhead variances

2. Interpret the material and labor variances. What do they indicate about the company's performance?

3. How could the company control or better manage its operations?

4. In your opinion, what are the best options? Why?

Answer 1

1

Material variances Material Price Variance=(Standard rate-Actual rate)* Actual quantity Material Price Variance (Plastic)= (4.50-4.45)*185000 9250 F Material Price Variance (Molding)= (3-3.10) *50000 -5000 Unfavorable Material Usage Variance (Standard Quantity-Actual Quantity)*Standard Price Material Usage Variance (Plastic)= (10*18000-185000) *4.50 -22500 Unfavorable Material Price Variance (Molding)= (3*18000-50000)*3 12000 Favorable

Total Material cost variance- Material Price Variance+ Material Usage Variance Material cost variance (plastic)= 9250-22500 -13250 Unfavorable Material cost variance (molding) =-5000+12000 7000 Favorable

Labor variance Labor Rate Variance=(Actual Rate-Standard rate) Actual hour -Actual cost-Standard rate*Actual hours =435000-4*6*18000 = 3000 Unfavorable Labor efficiency variance=(Actual hours-Standard hours) "standard rate =(72500-4*18000) *4 = 2000 Unfavorable Labor cost variance=labor rate variance + labor efficiency variance = 3000+2000= 5000 Unfavorable