Great Fender, which uses a standard cost system, manufactured 20,000 boat fender
ID: 2574007 • Letter: G
Question
Great Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018, using 145,000 square feet of extruded vinyl purchased at $1.20 per square foot. Production required 420 direct labor hours that cost $15.50 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of $1.25 per square foot. The labor standard was 0.025 direct labor hour per fender, at a standard cost of $14.50 per hour. Read the requirement. Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost, AQ = actual quantity; FOH = fixed overhead SC = standard cost; SQ = standard quantity.) Formula (AC-SC)x AQ (AC - SC) x AQ Variance = $ 7,250 F = $ 420 U Direct materials cost variance = Direct labor cost variance Select the required formulas, compute the efficiency variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost, AQ = actual quantity: FOH = fixed overhead, sc-standard cost; SQ = standard quantity.) Formula Variance Direct materials efficiency variance- Direct labor efficiency varianceExplanation / Answer
SOLUTION:
Material total variance = Actual Material cost - Standard material cost
= 174,000 - 175,000 = (1,000) F
Material Qty Variance = Standard Price x (Actual quantity - Standard Quantity)
= 1.25 x (145,000 - 140,000) = 6250 U
Material rate Variance = Actual quantity x (Actual price - Standard Price)
= 145,000 x (1.20 - 1.25) = (7250) F
Labor total variance = Actual labor cost - Standard labor cost
= 6510 - 7250 = (740) F
Labor Efficiency Variance = Standard rate x (Actual hour - Standard hour)
= 14.50 ( 420 - 500) = (1160) U
Labor rate Variance = Actual hour x (Actual rate - Standard rate)
= 420 * (15.50 - 14.50) = 420 U
Working:
Great Fender
Sq. Foot
Rate
Amount
Working
Actual Material
145000
$ 1.20
$ 174,000.00
Labor
420
$ 15.50
$ 6,510.00
Standard
Material
140,000
$ 1.25
$ 175,000.00
7feet * 20,000
Labor
500
$ 14.50
$ 7,250.00
20000*0.025
Great Fender
Sq. Foot
Rate
Amount
Working
Actual Material
145000
$ 1.20
$ 174,000.00
Labor
420
$ 15.50
$ 6,510.00
Standard
Material
140,000
$ 1.25
$ 175,000.00
7feet * 20,000
Labor
500
$ 14.50
$ 7,250.00
20000*0.025
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