Question

RJM Enterprises is a manufacturer of consumer electronics products. The industry is very competitive, and RJM has seen its profits fall in recent years, including an operating loss of $36,159 last year. RJM was able to turn that around this year by aggressively cutting costs. The summarized financial results for RJM are shown below:

	Current Year				Prior Year
Gross sales:	$	936,540			$	1,291,220
Less variable costs
Direct materials		534,600				754,400
Direct labor		237,600				482,979
Total contribution margin	$	164,340			$	53,841
Fixed cost		33,509				90,000
Operating income	$	130,831			$	(36,159	)

Jim Green, the management accountant at RJM, is analyzing the company’s performance for this year in order to explain to management the specific aspects that drove the company to success. Some of the information Jim obtained follows:

	Current Year				Prior Year
Sales units		39,600				46,000
Price	$	23.65			$	28.07
Direct materials cost per unit of material	$	7.50			$	8.20
Direct materials required per unit		1.80				2.00
Direct labor required per unit		0.60				0.75
Wage rate ($/hour)	$	10.00			$	14.00

Assume that RJM, for efficiency and to reduce cost, maintains little or no direct materials or work-in-process inventory.

Required:

1. Determine the selling price variance for the current year based on sales dollars. Determine the sales volume variance based on contribution margin.

2. Determine the following variable cost variances:

a. The usage and price variances for direct materials.

b. The efficiency and rate variances for direct labor.

	1. Selling price variance in sales dollars Sales volume variance in contribution 2a. Materials usage variance Materials price variance 2b. Labor usage variance Labor rate variance

Answer 1

Summary of Answer
Material
Materials price variance	$         49,896	Favorable
Materials usage variance	$         64,944	Favorable
Labor
Labor rate variance	$         95,040	Favorable
Labor usage variance	$         83,160	Favorable
Sales
Sales volume variance in contribution	$           7,488	Unfavorable
Sales price variance	$      175,032	Unfavorable

	Minus sign indicate Favorable variance.
	Measure	Unit of material
	Standard price per Unit of material	$            8.20
	Actual price per Unit of material	$            7.50
39600*2	Standard quantity in Unit of material s	79200
39600*1.80	Actual quantity purchased in Unit of material s	71280
39600*1.80	Actual quantity used in Unit of material s	71280
	Actual price per Unit of material	7.50
Less	Standard price per Unit of material	-8.20
	Difference	-0.70
Multiply	Actual quantity purchased in Unit of material s	71280
	Materials price variance	$     (49,896)
	Indicate	Favorable
	Actual quantity used in Unit of material s	71280
Less	Standard quantity in Unit of material s	-79200
	Difference	-7920
Multiply	Standard price per Unit of material	8.20
	Materials usage variance	$     (64,944)
	Indicate	Favorable

	Minus sign indicate Favorable variance.
	Measure	Hour
	Standard rate per Hour	$            14.00
	Actual rate per Hour	$            10.00
39600*0.75	Standard labor Hours	29700
39600*0.60	Actual labor Hours	23760
	Actual rate per Hour	10.00
Less	Standard rate per Hour	-14.00
	Difference	-4.00
Multiply	Actual labor Hours	23760
	Labor rate variance	$       (95,040)
	Indicate	Favorable
	Actual labor Hours	23760
Less	Standard labor Hours	-29700
	Difference	-5940
Multiply	Standard rate per Hour	14.00
	Labor usage variance	$       (83,160)
	Indicate	Favorable

	Selling price per unit	$            28.07
Less:	Variable cost per unit ((8.20*2)+(0.75*14))	$            26.90
	Budgeted Contribution margin per unit	$               1.17
	Actual sales Units	39,600
Less:	Budgeted sales Units	46,000
	Increase (Decrease) in units	(6,400)
Multiply:	Budgeted Contribution margin per unit	$               1.17
	Sales volume variance	$          (7,488)
	Indicate	Unfavorable

	Minus sign indicate unfavorable variance.
	measure	Unit
	Standard price per Unit	$        28.07
	Actual price per Unit	$        23.65
	Standard quantity in Units	46,000
	Actual quantity in Units	39,600
	Actual price per Unit	23.65
Less	Standard price per Unit	-28.07
	Difference	-4.42
Multiply	Actual quantity in Units	39600
	Sales price variance	$ (175,032)
	Indicate	Unfavorable