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.

Analysis of materials and labor variances

Upscale Products Inc. uses a standard cost system in accounting for the cost of production of its only product, Suave. The standards for the production of one unit of Suave follow:

Direct materials: 10 feet of Class at $0.75 per foot and 3 feet of Chic at $1.00 per foot.

Direct labor: 4 hours at $8.00 per hour.

Factory overhead: applied at 150% of standard direct labor costs.

There was no beginning inventory on hand at July 1. Following is a summary of costs and related data for the production of Suave during the following year ended June 30:

100,000 feet of Class were purchased at $0.72 per foot.

30,000 feet of Chic were purchased at $1.05 per foot.

8,000 units of Suave were produced that required 78,000 feet of Class, 26,000 feet of Chic, and 31,000 hours of direct labor at $ 7.80 per hour.

6,000 units of product Suave were sold.

On June 30, there are 22,000 feet of Class, 4,000 feet of Chic, and 2,000 completed units of Suave on hand. All purchases and transfers are “charged in” at standard.

Required:

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

1. Materials quantity variance for Class.

2. Materials quantity variance for Chic.

3. Materials purchase price variance for Class.

4. Materials purchase price variance for Chic.

5. Labor efficiency variance.

6. Labor rate variance.

Reference:

• The materials price variance reflects the actual unit price of materials above or below the standard unit price, multiplied by the actual quantity of materials used.

• 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.