Question

Grand Guard, which used a standard cost accounting system, manufactured 130.000 boat fenders during the year using 1.130 000 eet of extruded vinyl purchased at $1.50 per foot. Production required 4,000 direct labor hours that cost $15.50 per hour. The materials standard was 6 feet of vinyl per fender at a standard cost of $150 per foot. The labor standard was 0.025 direct labor hour per fender at a standard cost of $14.50 per hour Read More Requirement 1. Compute the price and quantity variances for dired materials Compute the rate and ecency variances for direct labor. Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variances as favorable (F) or unfavorable (U). Abbreviations used UM Direct materials, DL Dired labor) Begin with the variances for direct materials. First, determine the formula for the direct materials price variance, the compute the price variance for direct material (Assume that the quantity of materials purchased is equal to the quantity of materials used) DM price variance T A Requirements 1. 2. Compute the price and quantity wariances for direct materials Compute the tate and efficiency variances for direct labor Does the pattern of variances suggest that the company's managers have been making trade-offs? Explain Print Done

Answer 1

1: -

Computation of Price and quantity variance for direct materials and rate or efficiency variance for direct labor:

Actual quantity = 1130000 feet

Standard price = $1.60

Actual price = $1.50

Standard quantity for actual output = 180000*6 = 1080000

Actual hours = 4000 hours

Actual rate = $15.50

Standard hours for actual output = 180000*0.025 = 4500

Standard rate = $14.50

DM Price variance = Actual quantity*(Standard price – Actual price)

= 1130000*($1.60 - $1.50) = 1130000*$0.10 =$ 113000 F

DM Quantity variance = Standard price*(Standard quantity - Actual quantity)

= $1.60*(1080000 – 1130000) = $80000 U

DL Rate variance = Actual hours*(Standard rate – Actual rate)

= 4000*($14.50 - $15.50) = 4000*$1 =$4000 U

DL Efficiency variance = Standard rate*(Standard hours - Actual hours)

= $14.5*(4500-4000) = $7250 F

2:-

The pattern of variances suggests that the company’s managers have been making trade –off. Company manager’s have sacrificed quantity of direct materials and has comprised with the labor rate in order to get a certain product