1. Morninglory Construction Products, Inc. uses a standard costing system to assist in the evaluation of

operations. The company has had considerable employee difficulties in recent months, so much so

that management has hired a new production supervisor (Agatha Wilson). Wilson has been on the job

for nine months and has seemingly brought order to an otherwise chaotic situation.

The vice-president of manufacturing recently commented that ... Wilson has really done the

trick. Agatha's team-building/morale-boosting exercises have truly brought things under

control. The vice-president's comments were based on both a plant tour, where he observed a

contented work force, and review of a performance report that showed a total labor variance of

$14,000F. This variance is truly outstanding, given that it is less than 2% of the company's

budgeted labor cost. Additional data follow.

Total completed production amounted to 20,000 units.

Morninglory reported a direct-material quantity variance of $122,000U, approximately

10% of budgeted material cost.

A review of the firm's standard cost records found that each completed unit requires 2.75

hours of labor at $14 per hour. Morninglory's production actually required 42,000 labor

hours at a total cost of $756,000.

Required:

A. On the basis of the information contained in the performance report, should the vice-

president be concerned about the company's labor variances? Why?

B. Calculate Morninglory's direct-labor variances.

C. On the basis of your answers to requirement B, should Morninglory be concerned about

its labor situation? Why?

D. Briefly analyze and explain the direct-labor variances. Is it possible there is a relationship

between the cause of the direct-labor efficiency variance and the direct-material quantity

variance? Briefly discuss.