(Adjusting standards) Maui Muumuus manufactures traditional Hawaiian dresses. The company was started early in 1990, and the following standards for materials and labor were developed at that time:

Materials 3 yards at $6 per yard Labor 1.5 hours at $10 per hour In May 1996, Maui Muumuus hired a new cost accountant, Sally Rogers. At the end of May, Sally was reviewing the variances calculated for the month and was amazed to find that standards had never been revised since the company started. Actual data for May 1996 for material and labor are as follows:

Materials Purchased, 50,000 yards at $7.00 Used in production of 17,200 muumuus, 50,000 yards Labor 17,800 hours at $13.50 per hour Since 1990, material prices have risen 4 percent each year. However, the company can now buy at 94 percent of regular price due to the increased volume of purchases. Labor contracts have specified a 5 percent cost-of-living adjustment for each year, beginning in 1991. Because of revising the plant layout and pur¬ chasing some more efficient machinery, the labor time per muumuu has de- creased by one-third; also, direct material waste has been reduced from 1/4 yard to 1/8 yard per muumuu.

a. Determine the material and labor variances based on the standards originally designed for the company.

b. Determine the new standards against which Sally should measure the May 1996 results. (Round adjustments annually to the nearest penny.)

c. Compute the variances for material and labor using the revised standards.LO1