Barberry, Inc., manufactures a product called Fruta. The company uses a standard

Question

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:

The company produced 3,100 units during June.

There was no beginning inventory of materials; however, at the end of the month, 2,850 pounds of material remained in ending inventory.

The company employs 12 persons to work on the production of Fruta. During June, they worked an average of 170 hours at an average rate of $15.50 per hour.

Variable manufacturing overhead is assigned to Fruta on the basis of direct labor-hours. Variable manufacturing overhead costs during June totaled $6,800.

Compute the price and quantity variances.(Round your "price per pound" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

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?

Compute the rate and efficiency variances. (Round your "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

In the past, the 12 persons employed in the production of Fruta consisted of 4 senior workers and 8 assistants. During June, the company experimented with 6 senior workers and 6 assistants. Would you recommend that the new labor mix be continued?

Compute the variable overhead rate and efficiency variances.(Round your "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

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:

Explanation / Answer

1 (a) Material price variance = (S.P - A.P)Act. Qty

= (7-6.60)*4550

= 1820F

Material usage variance = (Std. Qty - Act. Qty)S.P

= (4030 - 4550)*7

= 3640U

(b) It is recommended that company should sign the contract since company has a favourable material price variance which indicates that supplier is offering at a price which is less than the standard price.

Working notes

Material consume = matrial purchased - closing inventory

Actual material consumed = 7400-2850 = 4550

Actual price per pound = 48840/7400 = 6.60

2. (a) Labour rate variance = (Std.Rate - Act. rate)*Act. hours worked

= (15 - 15.50)*2040

= 1020U

Labour efficiency variance = (Std. hrs - Act. Hrs)*Std. Rate

= (2480 - 2040)*15

= 6600F

(b) It is recommended that new labour mix should be continued since it results in favourable efficiency variance which indicates that new labour mix more efficient.

3. Variable overhead rate variance = (Std.rate - Act.rate)*Act.Hrs worked

= (3.50 - 3.33)*2040

= 340F

Variable overhead efficiency variance = (Std. hrs - Act.Hrs)*Std. Rate

= (2480 - 2040)*3.5

= 1540F

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