47. (Adjusting standards) Maui Muumuus manufactures traditional Hawaiian dresses.

The company was started early in 1995, and the following standards for materials and labor were developed at that time:

Material 3 yards at $6 per yard Labor 1.5 hours at $10 per hour In May 2001, 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 2001 for material and labor are as follows:

Material 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 1995, 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 1996. Because of revising the plant layout and purchasing more efficient machinery, the labor time per muumuu has decreased 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 2001 results. (Round adjustments annually to the nearest penny.)

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