Question

The Jone Restaurant Group manufactures the bags of frozen French fries used at its franchised restaurants. Last week, Jone's purchased and used 99,000 pounds of potatoes at a price of $0.75 per pound. During the week, 2,200 direct labor hours were incurred in the plant at a rate of $12.25 per hour. The standard price per pound of potatoes is $0.90, and the standard direct labor rate is $12.05 per hour. Standards indicate that for the number of bags of frozen fries produced, the factory should have used 97,000 pounds of potatoes and 1,900 hours of direct labor Requirements 1. Determine the direct material price and quantity variances Be sure to label each variance as favorable or unfavorable 2. Think of a plausible explanation for the variances found in Requirement 1 3. Determine the direct labor rate and efficiency variances. Be sure to label each variance as favorable or unfavorable 4. Could the explanation for the labor variances be tied to the material variances? Explain

Answer 1

1.

Direct material price variance = Actual quantity * (Standard price-Actual price)

Direct material price variance = 99,000 * ($0.90-0.75) = $14,850 Favorable

Direct material quantity variance = Standard price * (Standard quantity-Actual quantity)

Direct material quantity variance = $0.90 (97,000-99,000) = $1,800 Unfavorable

2.

Direct material purchases at lower price than budgeted resulting in favorable price variance however unfavorable direct material quantity variance shows low quality of material purchased at lower rates resulting in more usage of direct material in production.

3.

Direct labor rate variance = Actual hours * (Standard rate-Actual rate)

Direct labor rate variance = 2,200 * ($12.05-12.25) = $440 Unfavorable

Direct labor efficiency variance = Standard rate * (Standard hours-Actual hours)

Direct labor efficiency variance = $12.05 * (1,900-2,200) = $3,615 Unfavorable

4.

Yes, Due to unfavorable material quantity variance more direct labor hours been spent than budgeted resulting in unfavorable labor efficiency variance. Unfavorable labor rate variance may be due to assigning more skilled and efficient labors to cope with unfavorable material quantity variance.