Question

The Lucerne Chocolate Company uses standard costs to control its manufacturing of fine chocolates. The purchasing agent is responsible for material price variances while the production manager is responsible for all other variances. Operating data for the past accounting period are summarized as follows:

Finished units produced total 2,900 boxes of chocolate

Direct material purchased and used totaled 3,400 lbs. (pounds)

The purchase price was $17.30 per lbs.

Standard price per pound of chocolate is $18.00

The manufacturing standard is that each box of chocolate uses 1 lbs. of chocolate

Actual direct labor costs incurred was $151,505 which was based on 3,925 hours at a labor rate of $38.60

The standard labor rate allowed per box produced is 1.25 hours at a standard labor per hour of $38

Calculate the following (20 points)

Material Price Variance (Purchase Price Variance – PPV)

Material Quantity Variance (Usage Variance)

Labor Rate Variance

Labor Efficiency Variance

Consider the Material Quantity Variance (Usage Variance) and Labor Efficiency Variance. Identify a list of factors that would cause The Lucerne Chocolate Company production to use more or less material then planned (Material Quantity Variance (Usage Variance)) when making its product. In addition, relative to the Labor Efficiency Variance, identify a list of factors that would cause The Lucerne Chocolate Company production to use more or less labor then planned (Labor Efficiency Variance) when making its product. (30 points)

Answer 1