Question

(1)

Tolton, Inc. is just shy of hitting its operating income target. The manager, K.T. Tolton, decides to purchase inferior materials right before year end. The standard price for the materials is $14.00 per pound. K.T. buys 3,000 pounds of inferior product at $11.44 per pound. What is the effect on net income for the year? Please sign an increase as a positive number (e.g. 100) and a decrease as a negative number (e.g. -100).

(2)

Garland Company uses a standard cost system. The standard for each finished unit of product allows for 3.7 pounds of plastic at $0.71 per pound. During December, Garland bought 4600 pounds of plastic at $0.78 per pound, and used 4100pounds in the production of 1300 finished units of product. What is the direct materials usage variance for the month of December?

Please round to the nearest dollar. Also, please indicate an unfavorable or favorable variance with "u" or "f", respectively.

(3)

A firm with a standard costing system budgets 4,000 direct labor hours at $19 per hours to make 2,000 units. The firm actually produced 2,000 units using 7,000 direct labor hours at $23 per hour. When labor occurred during the period, what was the total dollar value of the credit to wages payable?

Answer 1

1)
EARLIER PURCHASE PRICE	$             14.00
NEW PURCHASE PRICE	$             11.44
REDUCTION IN PURCHASE PRICE	$               2.56
QUANTITY	3,000
INCREASE IN NET INCOME	$       7,680.00
2)
DIRECT MATERIAL USAGE VARIANCE	(STANDARD QUANTITY OF MATERIAL USED - ACTUAL MATERIAL REQUIRED) * STANDARD RATE OF MATERIAL PER UNIT
STANDARD QUANTITY OF MATERIAL REQUIRED	= 1300 * 3.7	4810	pounds
ACTUAL QUANTITY OF MATERIAL USED		4100	pounds
STANDARD RATE OF MATERIAL PER UNIT	$               0.71
DIRECT MATERIAL USAGE VARIANCE	(4810 - 4100) * 0.71
	$                504	favorable
3)
LABOR HOURS	7,000
RATE OF LABOR HOUR	$             23.00
WAGES PAYABLE	$ 161,000.00