Chapter 8, Problem 2P

Materials and labor variances

Fausto Fabricators Inc. uses a standard cost system to account for its single product. The standards established for the product include the following:

The following operating data came from the records for the month:

In process, beginning inventory, none.

In process, ending inventory, 800 units, 80% complete as to labor; material is issued at the beginning of processing.

Completed during the month, 5,600 units.

Materials issued to production were 51,680 lb @ $.55 per pound. Direct labor was $384,000 for 40,000 hours worked.

Required:

Calculate the following variances, using the diagram format in Figure 8-4.

1. 1. Materials price.
2. 2. Materials quantity.
3. 3. Net materials variance.
4. 4. Labor rate.
5. 5. Labor efficiency.
6. 6. Net labor variance.

(Hint: Before determining the standard quantity for materials and labor, you must first compute the equivalent units of production for materials and labor.)