Question

1. O’Brien Vineyards has the following direct materials standard to manufacture one bottle of Pinot Noir:
2.4 pounds of grapes per bottle at $1.65 per pound
Last week, 5,415 pounds of grapes were purchased and used to make 2,125 bottles. The grapes cost a total of $9,043.05.
What is O’Brien Vineyards materials quantity variance and the materials price variance? (Don’t forget to indicate if the variances are favorable or unfavorable).
What are 2 possible reasons for the variances?
2. O’Brien Vineyards has the following direct labor standard to bottle, cork and label one bottle of Pinot Noir:
0.33 standard hours per bottle at $11.25 per direct labor hour
Last week, 777 direct labor hours were worked at a total labor cost of $8,787 to bottle, cork and label 2,125 bottles.
What is O’Brien Vineyards labor efficiency variance and the labor rate variance? (Don’t forget to indicate if the variances are favorable or unfavorable).
What are 2 possible reasons for the variances?

Answer 1

Answer:-

The Materials value fluctuation = (Actual cost - Standard price)*actual amount pruchased
= (1.67 - 1.65)*5415 = $108.3 (U)
The Material quantity variance = (the actual quantity – the standard quantity of that actual output)*the standard price
= (5415 - 2.4*2125)*1.65 = $519.75 (U)
Reasons of the variances:
So that the variances are unfavorable.
Cost fluctuation may be consequence for the general increment in value levels.
The quantity variance might be due to inefficient production and poor quality
the material.
2)
The labor rate variance = (theactual rate - thestandard rate)*theactual hours
= (8787/777 - 11.25)*777 = $45.75 (U)
The labor quantity variance = (the actual hours -the standard hours for actual production)*the standard rate
= (777 - 2125*0.33)*11.25 = $852 (U)
So that the Both the variances are unfavorable
Rate variancemight be due to increase in wage rates.
Proficiency difference would be because of wasteful handling.