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 analyses

Zippy Inc. manufactures a fuel additive, Surge, which has a stable selling price of $44 per drum. The company has been producing and selling 80,000 drums per month.

In connection with your examination of Zippy’s financial statements for the year ended September 30, management has asked you to review some computations made by Zippy’s cost accountant. Your working papers disclose the following about the company’s operations: Standard costs per drum of product manufactured:

Costs and expenses during September:

Chemicals: 645,000 gallons purchased at a cost of $1,140,000; 600,000 gallons used.

Empty drums: 94,000 purchased at a cost of $94,000; 80,000 drums used.

Direct labor: 81,000 hours worked at a cost of $654,480. Factory overhead: $768,000.

Required:

Calculate the following variances for September, using the formulas on pages 402 and 403:

1. Materials quantity variance.

2. Materials purchase price variance.

3. Labor efficiency variance.

4. Labor rate variance

Reference:

• The materials quantity (usage) variance represents the actual quantity of direct materials used above or below the standard quantity allowed for the actual level of production, at standard price.LO3