Question

Deluxe Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018, using 142,000 square feet of extruded vinyl purchased at $1.55 per square foot. Production required 440 direct labor hours that cost $16.50 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of $1.60 per square foot. The labor standard was 0.025 direct labor hour per fender, at a standard cost of $15.50 per hour. Read the requirement. 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 - Direct labor cost variance Select the required formulas, compute the efficiency 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 efficiency variance Direct labor efficiency variance Does the pattern of variances suggest Deluxe Fender's managers have been making trade-offs? Explain. The direct materials. The net effect on the total direct materials variance is direct materials cost variance combined with the V direct materials efficiency variance suggests that managers may have used The direct labor cost variance combined with the Vdirect labor efficiency variance suggests that managers may have used workers who performed more efficiently. The net effect on the total direct labor variance is

Answer 1

Particulars Variance Formula Standard Cost -Actual Cost (SQ x SP) (AQx AP) (140000*1.6) (142000 1.55) (224000-220100) Direct Material Cost Variance 3900(F) Working notes SQ= Actual production * std raw material per unit sQ 20000 units *7 sq ft vinyl per unit 14000 sq feet AQ is Actual raw material usd for actual production AQ Actual production * actual raw materal used per unit AQ given as 142000 sq ft. Therefore Raw mt used per unit of output = 142000/20000 7.1 sq ft per unit SP standard price given as $1.60 per sq ft AP= Actual price g.ven @ $1.55 per sq ft Appying the formula (SQ*SP) (AQ* AP) 140000 1.6- 142000 1.55

Particulars Formula Standard Cost -Actual Cost (SHx SR) - (AHx AR) (500 15.5) (440 16.5) (7750-7260) Variance Direct Labour Cost Variance 490(F) Working notes SH Actual production * std hours required per unit SH 20000 units .025 1hours 500 hours AH is Actual hours required for actual production AH Actual production actual labour hours used per unit AH given as 440 hours. Therefore hours used per unit of output 440/20000022 hours per unit SRstandard rate per hour given as $15.50 per hour AR- Actual rate given @ $16.50 per hour Appying the formula (SH SR) (AH AR)500 16.50- 440 15.5

Particulars Formula (SQ -AQ) x SP) (SQ-AQ) x SP) (140000 142000 1.60) 3200 Variance Direct Material Effeciency Variance 3200(A) Working notes SQ Actual production *std raw material per unit SQ 20000 units *7 sq ft vinyl per unit 14000 sq feet AQ is Actual raw material usd for actual production AQ= Actual production * actual raw materal used per unit AQ given as 142000 sq ft. Therefore Raw mt used per unit of output SP = standard price given as $1.60 per sq ft AP- Actual price given $1.55 per sq ft Appying the formula (SQ*SP) (AQ* AP)140000 1.6- 142000*1.55

Particulars Variance Formula (SH-AH)x SR (SH-AH)x SR (500-440) *15.5) 930 Direct Labour Efficiency Variance 930(f) Working notes ctual production SH 20000 units .025 1hours 500 hours AH is Actual hours required for actual production AH Actual production actual labour hours used per unit AH given as 440 hours. Therefore hours used per unit of output SR = standard rate per hour given as $15.50 per hour AR- Actual rate given @ $16.50 per hour Appying the formula (SH*SR)-(AH* AR) = 500*16.50-440*15.5

Does the pattern of variances suggest Deluxe Fenders managers have been making trade-of s? Explain The drect materias The net effect on the total direct materials varance i direct materiai's cost variance combined with the drect materials efficiency variance suggests that managers may have used direct labor cost variance combined wth he direct iabor efliciency variance suggests that managers may have used workers who performed more eficienty The net efect on the total direct labor varnance is The Favourable direct material cost variance combined with the unfavourable direct material effeciency variance suggests that managers may have used more direct material but at a lesser price. The net effect on the total direct materials variance is favourable. The Favourable direct Labour cost variance combined with high direct labour effeciency variance suggests that managers may have used less workers who performed efficiently but at a higher orice. The net effect on the total direct labour variance is unfavourable
Please note A stands for adverse or Unfavourable variance.

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