Buenolorl Company produces a well-known cologne. The standard manufacturing cost of the cologne is described by the following standard cost sheet:

Direct Materials:

Liquids (4.5 oz @ $0.40) .....................................$1.80

Bottles (1 @ $0.05) ..............................................$0.05

Direct Labor (0.2 @ $15.00) ................................$3.00

Variable Overhead (0.2 hr @ $5.00) ....................$1.00

Fixed overhead (0.2 hr. @ $1.50 ..........................$0.30

Standard Cost per unit...........................................$6.15

Management has decided to investigate only those variances that exceed the lesser of 10 percent of the standard cost for each category or $20,000.

During the past quarter, 250,000 4-ounce bottles of cologne were produced. Descriptions of actual activity for the quarter follow:

a. A total of 1.35 million ounces was purchased, mixed, & processed. Evaporation was higher than expected (no inventories of liquids are maintained). The price paid per ounce averaged $0.42.

b. Exactly 250,000 bottles were used. The price paid for each bottle was $0.048.

c. Direct labor hours totaled 48,250 with a total cost of $733,000.

Normal production volume for Buenolorl is 250,000 bottles per quarter. The standard overhead rates are computed by using normal volume. All overhead costs are incurred uniformly throughout the year.

Required:

1. Calculate the upper & lower control limits for materials and labor.

2. Compute the total materials variance, and break it into price & usage variances. Would these variances be investigated?

3. Compute the total labor variance, and break it into rate & efficiency variances. Would these variances be investigated?