Kascara Company manufactures plastic football helmets. The following standards have been established for the helmet’s variable inputs:

Standard Quantity Standard Price (Rate) Standard Cost Direct materials 2.40 Ib $ 3.00 Dae) Direct labor 0.32 hr 10.00 3.20 Variable overhead 0.32 hr 2.50 0.80 Total $11.20 During the first week of July, the company had the following actual results:

Units produced 40,000 Actual labor costs $140,000 Actual labor hours 13,200 Materials purchased and used 92,000 Ib @ $3.05 Actual variable overhead costs $53,000 Other information includes the following. The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in July. Also, a new manufacturing process was implemented on a trial basis. The new process required a slightly higher level of skilled labor. The higher-quality material has no effect on labor utilization. However, the new manufacturing process was expected to reduce materials usage by 0.05 Ib per helmet.

Required:

1. Compute the materials price and usage variances. Assume that the 0.05 pound reduction of materials occurred as expected and that the remaining effects are all attributable to the higher-quality material. Would you recommend that the purchasing agent continue to buy this quality? Or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly.

2. Compute the labor rate and efficiency variances. Assuming that the labor variances are attributable to the new manufacturing process, should it be continued or discontinued? In answering, consider the new process’ materials reduction effect as well. Explain.

3. Refer to Requirement 2. Suppose that the industrial engineer argued that the new process should not be evaluated after only one week. His reasoning was that it would take at least a week for the workers to become efficient with the new approach. Suppose that the production is the same the second week and that the actual labor hours were 12,000 and the labor cost was $124,000. Should the new process be adopted? Assume the variances are attributable to the new process. Assuming production of 40,000 units per week, what would be the projected annual savings? (Include the materials reduction effect.)