Question

Determining Unit Costs, Variance Analysis, and Interpretation
Big Dog Company, a manufacturer of dog food, produces its product in 1,000-bag batches. The standard cost of each batch consists of 6,000 pounds of direct materials at $0.30 per pound, 48 direct labor hours at $8.50 per hour, and variable overhead cost (based on machine hours) at the rate of $10 per hour with 18 machine hours per batch. The following variable costs were incurred for the last 1,000-bag batch produced:

Direct materials	6,300 pounds costing $1,778 were purchased and used
Direct labor	45 hours costing $450
Variable overhead	$250
Machine hours used	20 hours

(a) Determine the actual and standard variable costs per bag of dog food produced, separated into direct materials, direct labor, and variable overhead.

Round your answers to three decimal places.

	Actual Cost	Standard Cost
Direct materials	$Answer	$Answer
Direct labor	Answer	Answer
Variable overhead	Answer	Answer
Total variable costs per bag	$Answer	$Answer

(b) For the last 1,000-bag batch, determine the standard cost variances for direct materials, direct labor, and variable overhead.

Round your answers two decimal places.

Materials price variance	$Answer	AnswerFU
Materials quantity variance	$Answer	AnswerFU
Labor rate variance	$Answer	AnswerFU
Labor efficiency variance	$Answer	AnswerFU
Variable overhead spending variance	$Answer	AnswerFU
Variable overhead efficiency variance	$Answer	AnswerFU

(c) Which of the following is the most likely explanation for an unfavorable labor rate variance and a favorable labor efficiency variance?

Use of high efficiency equipment by undertrained employees.

Use of low efficiency equipment by highly skilled employees.

Use of poor quality materials resulting in overtime labor.

Use of higher skilled employees and high efficiency equipment.

Answer 1

Rreq a:
			Actual Cost		Standard Cost
Direct material			1.778		1.8
Dirrect Labour			0.45		0.408
Variable Overheads			0.25		0.18
Total variable cost			2.478		2.388
Req b:
Actual Price per pound (1778/6300)
Material Price variance = Actual Qty (Std price-Actual price)
		6300 pounds(0.30 - 0.2822) = $ 1890-1778 = $ 112 U
Material Quantity variance= Std price (Std quantity-Actual quantity)
		0.30 (6000-6300)= $ 90 U
Labour rate variance= Actual hours (Std rate-Actual rate)
		45 (8.50- 10) = $ 67.50 U
Labour efficiency variance= Std rate (Std hours-Actual hours)
		8.50 (48-45)= $ 25.50 F
Variable OH sepnding variance = Actual hours (Std OH rate-Actual OH rate)
			20 hours (10.00-12.50 )= $ 50 U
Variable OH efficiency variance= Std rate (Std Hours-Actual hours)
			10.00 ( 18-20) = $ 20 U
Req C:
Use of Higher skilled employees and high efficiency equipment.