Question

treeFender, which uses a standard cost? system, manufactured 20,000 boat fenders during 2016?, using 143,000 square feet of extruded vinyl purchased at $1.10 per square foot. Production required 440 direct labor hours that cost $12.50 per hour. The direct materials standard was seven square feet of vinyl per? fender, at a standard cost of $1.15 per square foot. The labor standard was 0.027 direct labor hour per? fender, at a standard cost of $11.50 per hour.

Compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest tree ?Fender's managers have been making? trade-offs? Explain

Answer 1

Part 1

Variances for Direct Materials

Standard square feet per fender (Std Qty) = Actual Production in 2016*Std Qty per unit

= 20,000 fenders*7 square feet = 140,000 square feet

Direct Materials Cost Variance = (Std Price - Actual Price)*Actual Qty used

= ($1.15 - $1.10)*143,000 = $7,150 F

Direct Materials Efficiency Variance = (Std Qty - Actual Qty)*Std Price

= (140,000 - 143,000)*$1.15 = ($3,450) U

Variances for Direct Labor

Std Hrs for Actual Production = Actual Production*Std hrs per unit

= 20,000*0.027 hr = 540 hrs

Direct Labor Cost Variance = (Std Rate - Actual Rate)*Actual Hrs used

= ($11.50 - $12.50)*440 hrs = ($440) U

Direct Labor Efficiency Variance = (Std Hrs - Actual Hrs)*Std Rate

= (540 hrs - 440 hrs)$11.50 = $1,150 F

Part 2

The managers may be making a trade off for cheaper production wasting materials because the unfavorable direct materials efficiency variance of $3,450 was due to using 7.15 square feet (143,000 sq ft/20,000 fenders) per fender. This may be a result of buying cheap quality vinyl at $1.10 rather than std price of $1.15.

The favorable labor efficiency variance of $1,150 may have been the result of hiring highly skilled workers and which also results in unfavorable cost variance for direct labor.