In: Accounting
You have a business manufacturing snarky masks for hipster wannabes. You produce these masks in batches of 100. Each mask has the following manufacturing standards (i.e., budgets):
Direct materials |
0.5 yards of material |
$70.00 per yard |
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Direct labor |
2.2 Direct Labor Hours |
$21.00 per Direct Labor Hour |
There is no beginning or ending inventory for WIP and Finished Goods. You have sufficient beginning direct material inventory of material that you do not need to purchase any during the month.
During October 2020 you made 11 batches of masks (100 masks in each batch) and spent/used/incurred the following:
Yards of material |
600 yards |
$40,538 in total |
||
Direct labor |
2,400 DLH |
$51,340 in total |
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REQUIRED:
Material Price Variance = AQ *(SP-AP) = 600 * (70 - 67.56) = 1462 (F)
Material Usage Variance = SP *(SQ-AQ) = 70 * (550-600) = 3500 (A)
Labour Rate Variance = AH*(SR-AR) = 2400 * (21-21.39) = 940 (A)
Labour Efficiency Variance = SR * (SH-AH) = 21 * (2420 -2400) = 420 (F)
1. Fred has done a good job because he had purchased at a price(i.e. $67.56) than the budgeted Price (i.e. $70.00)
2. Franny was unsuccessful in his Raw Material Consumption i.e. Actual Raw Material Consumption was higher as compared to the Budgeted.
3. Franny was done a good job in the usage of Labour Hours, he had made the work completed in less than the Budgeted Hours.
4. Futz was unsuccessful in fixing the Labour Rates because he paid the Direct Labour higher than the rate budgeted.