Question

Deluxe Fender, which uses a standard costs system, manufactured 20,000 boat fenders during 2018, using 144,000 square feet of extruded vinyl purchased at $1.15 per square foot. Production required 440 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 $1.20 per square foot. The labor standard was 0.025 direct labor hour per fender, at a standard cost of $13.50 per hour.

Please compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest Deluxe Fender's managers have been making trade-offs? Please explain.

Thank you in advance :)

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 11 O Direct labor cost variance 11

Answer 1

Direct Materials Cost Variance = (Actual Cost - Standard cost) * Actual Quantity = ($1.15 per sq. ft. - $1.20 per sq. ft.) * 144,000 sq.ft = $7,200 Favorable (F) Direct Materials Efficiency Variance = (Actual Quantity - Standard Quantity) * Standard cost = [144.000 sq. ft. - (20,000 boat fenders * 7 sq. ft. per fender)] * $1.20 per sq. ft. = (144,000 sq. ft. - 140,000 sq.ft) * $1.20 per sq. ft. $4,800 Unfavorable (U) Direct Labor Cost Variance = (Actual Cost - Standard cost) * Actual Quantity = ($14.50 per hr. - $13.50 per hr.) * 440 hours $440 Unfavorable (U) Direct Labor Efficiency Variance = (Actual Quantity - Standard Quantity) * Standard cost = [440 hrs. - (20,000 boat fenders * 0.025 DLhr. per fender)] * $13.50 per hr. = (440 hrs. - 500 hrs) * $13.50 per hr. = $810 Favorable (F)