Question

In: Accounting

Montecino Corporation uses two different types of labor to manufacture its product. The types of labor,...

Montecino Corporation uses two different types of labor to manufacture its product. The types of labor, Cutting and Setup, have the following standards:

Labor Type	Standard Mix	Standard Unit Price	Standard Cost
Cutting	500 hours	$7.50 per unit	$3,750
Setup	125 hours	5.00 per unit	$ 625
Yield	3,125 units

During July, the following actual production information was provided:

Labor Type	Actual Mix
Cutting	4,375 hours
Setup	1,875 hours
Yield	28,125 units

What is the Labor mix variance?

a.$3,750(U)

b.$1,563(F)

c.$3,750(F)

d.$1,563(U)

Expert Solution

Actual hours = Cutting + Setup = 4375 + 1875 = 6,250 hours

Standard hours = Cutting + Setup = 500 + 125 = 625 hours

Actual hours in standard mix:

Cutting = 6,250 × (500/625) = 5,000 hours

Setup = 6,250 × (125/625) = 1,250 hours

Actual hours in actual mix:

Cutting = 4,375 hours

Setup = 1,875 hours

Mix variance:

Cutting = (Actual hour in standard mix – Actual hour in actual mix) × Standard rate

= (5,000 – 4,375) × $7.50

= 625 × $7.50

= 4,687.5 F, (since actual hour in actual mix < Actual hour in standard mix)

Setup = (Actual hour in standard mix – Actual hour in actual mix) × Standard rate

= (1,250 – 1,875) × $5

= 625 × $5

= 3,125 U, (since actual hour in actual mix > Actual hour in standard mix)

Total mix variance = Cutting + Setup

= 4,687.5 F + 3,125 U

= 1,562.5 F, (since F is greater than U)

= 1,563 F [rounded]

Answer: b

ekkarill92 answered 2 years ago

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