Chapter 11, Problem 11.22AE

Calculate and interpret direct material and direct labor variances (Learning Objectives 2 & 3)

The Windam Restaurant Group manufactures the bags of frozen French fries used at its franchised restaurants. Last week, Windam purchased and used 98,000 pounds of potatoes at a price of $0.85 per pound. During the week, 2,100 direct labor hours were incurred in the plant at a rate of $12.45 per hour. The standard price per pound of potatoes is $1.00, and the standard direct labor rate is $12.15 per hour. Standards indicate that for the number of bags of frozen fries produced, the factory should have used 95,000 pounds of potatoes and 2,000 hours of direct labor.

Requirements

1. 1. Determine the direct material price and quantity variances. Be sure to label each variance as favorable or unfavorable.
2. 2. Think of a plausible explanation for the variances found in Requirement 1
3. 3. Determine the direct labor rate and efficiency variances. Be sure to label each variance as favorable or unfavorable
4. 4. Could the explanation for the labor variances be tied to the material variances? Explain.