Calculate materials and labor variances (Learning Objective 4)

McDonald’s manufactures the bags of frozen french fries used at its franchised restaurants. Last week, McDonald’s purchased and used 100,000 pounds of pota¬ toes at a price of $0.75 per pound. During the week, 2,000 direct labor hours were incurred in the plant at a rate of $12.25 per hour. The standard price per pound of potatoes is $0.85, and the standard direct labor rate is $12.00 per hour. Standards indicate that for the number of bags of frozen fries produced, the factory should have used 97,000 pounds of potatoes and 1,900 hours of direct labor.

Requirements 1. Determine the direct materials price and efficiency 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 price 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.