P11-11 Barberry, Inc., manufactures a product called
Fruta. The company uses a standard cost system and has established the
following standards for one unit of Fruta:
|
Standard
Quantity
|
Standard
price or Rate
|
Standard
Cost
|
|
|
Direct
materials
|
1.5 pounds
|
$6.00 per pound
|
$9.00
|
|
Direct
labor
|
0.6 hours
|
$12 per hour
|
7.20
|
|
Variable
manufacturing overhead
|
0.6 hours
|
$2.50 per hour
|
1.50
|
|
$17.70
|
During June, the company
recorded this activity related to production of Fruta:
a. The company produced
3,000 units during June.
b. A total of 8,000 pounds
of material were purchased at a cost of $46,000.
c. There was no beginning
inventory of materials; however, at the end of the month, 2,000 pounds of
material remained in ending inventory.
d. The company employs 10
persons to work on the production of Fruta. During June, they worked an average
of 160 hours at an average rate of $12.50 per hour.
e. Variable manufacturing
overhead is assigned to Fruta on the basis of direct labor-hours. Variable
manufacturing overhead costs during June totaled $3,600.
The company’s management is
anxious to determine the efficiency of Fruta production activities.
Required:
1. For direct materials:
a. Compute the price and quantity variances.
b. The materials were purchased from a new supplier
who is anxious to enter into a long term purchase contract. Would you recommend
that the company sign the contract?
Explain.
2. For labor employed in
the production of Fruta:
a. Compute the rate and efficiency variances.
b. In the past, the 10 persons employed in the
production of Fruta consisted of 4 senior workers and 6 assistants. During
June, the company experimented with 5 senior workers and 5 assistants. Would
you recommend that the new labor mix be continued? Explain.
3. Compute the variable
overhead rate and efficiency variances. What relation can you see between this
efficiency variance and the labor efficiency variance?
TUTORIAL PREVIEW
1. a. In
the solution below, the materials price variance is computed on the entire
amount of materials purchased, whereas the materials quantity variance is
computed only on the amount of materials used in production:
|
Standard Quantity Allowed for Actual Output,
at Standard Price (SQ × SP) |
Actual Quantity
of Input, at Standard Price (AQ × SP) |
Actual Quantity
of Input, at Actual Price (AQ × AP) |
|
4,500 pounds* ×
$6.00 per pound = $27,000 |
6,000 pounds ×
$6.00 per pound
= $36,000
|
$46,000
|
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