Barberry, Inc., manufactures a product called Fruta. The company uses a standard
ID: 2465384 • Letter: B
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 3,000 units during June.
There was no beginning inventory of materials; however, at the end of the month, 2,000 pounds of material remained in ending inventory.
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.
Variable manufacturing overhead is assigned to Fruta on the basis of direct labor-hours. Variable manufacturing overhead costs during June totaled $3,600.
Compute the price and quantity variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
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. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
In the past, the 10 persons employed in the production of Fruta consisted of 4 senior workers and 6 assistants. During June, the company experimented with 5 senior workers and 5 assistants. Would you recommend that the new labor mix be continued?
Compute the variable overhead rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)
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
Actual price = $46000 / 8000 = $5.75/pound
Material Price Variance
= (Actual price – standard price) x actual purchase
= ($5.75/pound - $6/pound) x 8000 pounds
= $2000 F
Standard usage for actual production
= actual production x standard rate of usage of material
= 3000 units x 1.5 pound/unit
= 4500 pounds
Actual usage of materials = purchase – ending inventory = 8000 – 2000 = 6000 pounds
Material Quantity Variance
= (actual usage – standard usage) x standard price
= (6000 pounds – 4500 pounds) x $6 / pound
= $9000 U
b)
Yes
The actual price is less than the standard price. The price variance is positive. The usage variance is the efficiency of the production department and is not related to the efficiency of the purchase department. As the price variance is positive, the company should enter into the contract.
2)
Actual usage of labour hours = 10 x 160 = 1600 hours
Labour rate variance
= (Actual labour rate – standard labour rate) x Actual usage of labour
= ( $12.50/hour - $12/hour) x 1600 hours
= $800 U
Standard usage of labour
= actual production x standard labour hour per unit
= 3000 units x 0.6 hours/unit
= 1800 hours
Labour efficiency variance
= (actual usage – standard usage) x standard rate
= (1600 hours – 1800 hours) x $12/hour
= $2400 F
NO.
Normally the seniors will have a higher wage rate than the assistants. If the labour mix is changed in favour of the seniors, the total wage bill will be increased thereby increasing the average wage rate. The labour rate variance is already adverse and increase in average actual wage rate will definitely affect the rate variance more adversely.
Moreover, the efficiency variance is favourable with the current labour mix. So it is better to keep the same labour mix.
3 a)
Actual overhead rate = $3600 / 1600 hours = $2.25 / hour
Variable overhead rate variance
= (actual overhead rate – standard overhead rate) x actual hours worked
= ($2.25/hour - $2.50/hour) x 1600 hours
= $400 F
Variable overhead efficiency variance
= (actual hours worked – standard hours for actual production) x standard overhead rate
= (1600 hours – 1800 hours x $2.5 / hour
= $500 F
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