RYT (aka RotYourTeeth) Candy Company sells lollipops. Last year the company sold

ID: 2478433 • Letter: R

Question

RYT (aka RotYourTeeth) Candy Company sells lollipops.

Last year the company sold 10,000,000 lollipops for $1,000,000.

The Variable Costs were $350,000 and the Net Profits were $100,000

Administration has directed management to double profits in the next year

Part 1: Determine the DL and DM variances and provide explanations to the Board of Directors.

DM: Cost $1.50 per pound , 220,000 pounds used

DL: Cost $12 per hour, 16000 labor hours used

Direct material Budget Direct material required = 11538460 units x (1/50) pound per unit = 230769 pounds

Direct material cost = 230769 pounds x $1 per pound = $230769

Direct labor cost budget Labor hours required = 11538460 units x 0.0015 hour/unit = 17307.69 hours

Direct labor cost = 17307.69 hours x $10 per hour = $173077

Direct labor variance = Actual quantity * actual rate - actual quantity * standard rate

= 16000 * 12 - 16000 * 10

= 192000 - 160000 = 32000 favourable.

Direct material variance = [ standard price - actual price ] * actual quantity

= [ 1 - 1.50] * 220000

= -0.50 * 220000 = 110000 unfavourable.

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