Question

The Windam Restaurant Group manufactures the bags of frozen French fries used at its franchised restaurants. Last? week, Windam purchased and used 98,000 pounds of potatoes at a price of $0.85 per pound. During the? week, 2,100 direct labor hours were incurred in the plant at a rate of $12.45 per hour. The standard price per pound of potatoes is $1.00?, and the standard direct labor rate is $12.15 per hour. Standards indicate that for the number of bags of frozen fries? produced, the factory should have used 95,000 pounds of potatoes and 2,000 hours of direct labor.

1.	Determine the direct material price and quantity variances. Be sure to label each variance as favorable or unfavorable.
2.	Think of a plausible explanation for the variances found in Requirement 1.
3.	Determine the direct labor rate and efficiency variances. Be sure to label each variance as favorable or unfavorable.
4.	Could the explanation for the labor variances be tied to the material? variances? Explain.

Answer 1

1. Material price variance = (Standard rate - actual rate )× actual quantity used

= ($1 - $0.85) × 98000

= $ 14700 Favourable

Material quantity variance = ( Standard Qty - actual qty used ) × standard rate per unit

= ( 95000 - 98000 ) × $1

= $3000 unfavourable

Total material cost variance = (95000× 1) - (98000×0.85)

= $ 11700 favourable

2. The plausible reasons might be as follows :

~ Since the actual rate per unit of potatoes was less than the standard set, it resulted in a favourable variance of $14700.

~ But the quantity used was more than the set standard quantity allotted. Therefore the quantity variance was unfavourable by $3000

~ Thus, an overall favourable profit to the organisation was $11400 as reflected by the total material cost variance.

3. Direct labor rate variance = ( Std. Rate - actual rate) × actual hrs worked

= ($12.15 - $12.45) × 2100 hrs

= $ 630 Unfavourable

Labor efficiency variance = (Std. Hrs - Actual hrs )× std rate per hour

= (2000 - 2100) × $12.15

= $1215 unfavourable

So, total labour cost variance = (2000×12.15) - (2100×12.45)

= $1845 unfavourable

4 . The plausible reasons for the same are as follows:

~ Since both the actual hours taken to complete the work and the rate per hour were more than the set standarts, therefore it resulted in an overall unfavourable variance .