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

IMHO Products Co. manufactures a variety of products made of plastic and aluminum components. During the winter months, substantially all of the production capacity is devoted to the production of lawn sprinklers for the following spring and summer seasons. Other products are manufactured during the remainder of the year.

The company has developed standard costs for its several products. Standard costs for each year are set in the preceding October. The standard cost of a sprinkler for the current year is $3.70, computed as follows:

During February, IMHO Products manufactured 8,500 good sprinklers. The company incurred the following costs, which it charged to production:

Materials price variations are not determined by usage but are charged to a materials price variation account at the time the invoice is entered. All materials are carried in inventory at standard prices. Materials purchases for February were as follows:

Aluminum–1,800 lb @ $0.48 per lb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 864

Plastic–Regular grade–3,000 lb @ $0.50 per lb . . . . . . . . . . . . . . . . . . . 1,500

Low grade* –6,000 lb @ $0.29 per lb. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,740

*Due to plastic shortages, the company was forced to purchase lower-grade plastic than called for in the standards. This increased the number of sprinklers rejected on inspection.

Required:

Calculate price and usage variances for each type of material and for labor, using the formulas on pages 402 and 403.

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.