In all problems involving variances, use “F” and “U” to indicate favorable and unfavorab...

In all problems involving variances, use “F” and “U” to indicate favorable and unfavorable variances, respectively.

Materials and labor variances

Futuristic Fabricators Inc. uses a standard cost system to account for its single product. The standards established for the product include the following:

Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 lb @ $0.50 per lb

Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 hr @ $8.00 per hr

The following operating data came from the records for the month:

In process, beginning inventory, none.

In process, ending inventory, 800 units, 80% complete as to labor; material is issued at the beginning of processing.

Completed during the month, 5,600 units.

Materials issued to production were 51,680 lb @ $0.55 per pound.

Direct labor was $304,000 at the rate of $7.60 per hour.

Required:

Calculate the following variances, using the diagram format in Figure 8-4.

1. Materials price.

2. Materials quantity.

3. Net materials variance.

4. Labor rate.

5. Labor efficiency.

6. Net labor variance.

(Hint: Before determining the standard quantity for materials and labor, you must first compute the equivalent units for materials and labor.)

Reference: