Farnsworth Corporation produces high-quality leather belts. The company’s plant

Question

Farnsworth Corporation produces high-quality leather belts. The company’s plant in Albany uses a standard costing system and has set the following standards for material and labor:

Leather (3 strips @ $4 per strip)

Direct labor (0.75 hr. @ 12 per hour)

During the first month of the year, Albany plant produced 92,000 belts. Actual leather purchased and used was 287,500 strips at $3.60 per strip. Actual direct labor was 78,200 hours at $12.50 per hour.

A. Calculate the materials price and efficiency variances

B. Calculate the labor rate and efficiency variances

Explanation / Answer

(A)

Material Price Variance= AQ (AR – SR)

2,87,500 Units ($3.60 – $4.00) = $1,15,000 Favorable

Material Efficiency Variance = SR (AQ – SQ)

$4.00 (2,87,500 Units – 2,76,000*) = $46,000 Un favorable

*92,000 x 3 = 2,76,000 Units

(B)

Labor rate variance = AH (AR – SR)

78,200 hours ($12.5 per hour – $12 per hour) = $39,100 Unfavorable

Labor efficiency variance = SR (AH – SH)

$12 per hour (78,200 hours – 69,000* hours) = $1,10,400 Unfavorable

*92,000 Units x 0.75 per hour = 69,000 Hours

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