Question

Standard Costing, Planned Variances Phono Company manufactures a plastic toy cell phone. The following standards have been established for the toy's materials and labor inputs: Standard Quantity Standard Price (rate in $) Standard Cost Direct materials 0.5 lb. $ 1.50 $0.75 Direct labor 0.15 hr. 10.00 1.50 During the first week of July, the company had the following results: Units produced 90,000 Actual labor costs $138,000 Actual labor hours 13,400 Materials purchased and used 44,250 lbs. @ $1.55 per lb The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in July. Also, a new manufacturing layout was implemented on a trial basis. The new layout required a slightly higher level of skilled labor. The higher-quality material has no effect on labor utilization. Similarly, the new manufacturing approach has no effect on material usage. (Note: Round all variances to the nearest dollar.) Required: 1. Conceptual Connection: Compute the materials price and usage variances. Materials price variance $ 2,213 Unfavorable ✓

Answer 1

Labor Efficiency Variance Actual labor hours Actual production Standard labor hours required per unit Standard hours required for Actual production (90,000 * 0.15) 13,200 hours 90,000 unit 0.15 hr/unit 13,500 hours Labor efficiency variance (Actual Hours - Standard hours) * Standard rate (13,200 - 13,500) $ 10 3,000 Favorable Labor efficiency Variance 3,000 Favorable Projected Annual Savings 3,000