Chapter 8, Problem 5P

Analysis of materials and labor variances

High-End Products Inc. uses a standard cost system in accounting for the cost of production of its only product, Swank. The standards for the production of one unit of Swank follow:

Direct materials: 10 feet of Class at $.75 per foot and 3 feet of Chic at $1.00 per foot.

Direct labor: 4 hours at $12.00 per hour.

Factory overhead: applied at 150% of standard direct labor costs.

There was no beginning inventory on hand at July 1. Following is a summary of costs and related data for the production of Swank during the following year ended June 30:

100,000 feet of Class were purchased at $.72 per foot.

30,000 feet of Chic were purchased at $1.05 per foot.

8,000 units of Swank were produced that required 78,000 feet of Class, 26,000 feet of Chic, and 31,000 hours of direct labor at $11.80 per hour.

6,000 units of product Swank were sold.

On June 30, there are 22,000 feet of Class, 4,000 feet of Chic, and 2,000 completed units of Swank on hand. All purchases and transfers are “charged in” at standard.

Required:

Calculate the following, using the formulas on pages 421–422 and 424 and compute the materials variances for both Class and Chic:

1. 1. Materials quantity variance.
2. 2. Materials purchase price variance.
3. 3. Labor efficiency variance.
4. 4. Labor rate variance.