Chapter 8, Problem 4P

Calculation of materials and labor variances

Fritz Corp. manufactures and sells a single product. The company uses a standard cost system. The standard cost per unit of product follows:

The charges to the manufacturing department for November, when 5,000 units were produced, follow:

The Purchasing department normally buys about the same quantity as is used in production during a month. In November, 5,500 lb were purchased at a price of $2.90 per pound.

Required:

Calculate the following from standard costs for the data given, using the formulas on pages 421–422 and 424:

1. 1. Materials quantity variance.
2. 2. Materials purchase price variance (at time of purchase).
3. 3. Labor efficiency variance.
4. 4. Labor rate variance.
5. 5. Give some reasons as to why both the materials quantity variance and labor efficiency variance might be unfavorable.