Dock Guard, which uses a standard cost accounting system, manufactured 210,000 b

Question

Dock Guard, which uses a standard cost accounting system, manufactured 210,000 boat fenders during the year, using 1,780,000 feet of extruded vinyl purchased at $1.30 per foot. Production required 4,600 direct labor hours that cost $16.00 per hour. The materials standard was 8 feet of vinyl per fender at a standard cost of $1.40 per foot. The labor standard was 0.022 direct labor hour per fender at a standard cost of $15.00 per hour. Requirements 1 Compute the price and quantity variances for direct materials. Compute the rate and efficiency variances for direct labor. 2. Does the pattern of variances suggest that Dock Guard's managers have been making trade-offs? Explain.

Explanation / Answer

Computation of Variances:

DM Price variance = (Standard rate - actual rate) x actual quantity
= ($1.40 - $1.30) x 17,80,000
= $1,78,000 Favorable

DM quantity variance = (Standard quantity - actual quantity) x standard rate
= {(2,10,000 x 8) - 17,80,000} x $1.40
= (16,80,000 - 1,78,0000) x $1.40
= $1,40,000 Unfavorable    

DL Rate variance = (Standard rate - actual rate) x actual hour
= ($15.00 - $16.00) x 4600 hour
= $4600 Unfavorable

DL efficiency variance = (Standard hours - actual hours) x Standard rate
= {(210000 x 0.022) - 4600} x $15.00
= (4620 - 4600) x $15.00
= $300 Favorable

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