6. Capstone, Inc. (Chapter 10)

Capstone, Inc. uses very stringent standard costs in evaluating its manufacturing efficiency. These standards are not ideal at this point, but the management is working toward that as a goal. At present, the company uses the following standards.

Materials

Item Per unit Cost

Metal 1 lb. 65 per lb.

Plastic 12 oz. $1.25 per lb.

Rubber 4 oz. 75 per lb.

Direct Labor

Item Per unit Cost

Labor 13 min. $17.75 per hr.

Predetermined overhead rate based on direct labor hours $5.28

The January figures for purchasing, production, and labor are:

The company purchased 235,000 pounds of raw materials in January at a cost of 78 a pound.

Production used 232,000 pounds of raw materials to make 116,000 units in January. Direct labor spent 12 minutes on each product at a cost of $18.25 per hour.

Overhead costs for January totaled $54,673 variable and $73,800 fixed.

Instructions

Answer the following questions about standard costs.

1. What is the materials price variance?
2. What is the materials quantity variance?
3. What is the total materials variance?
4. What is the labor price variance?
5. What is the labor quantity variance?
6. What is the total labor variance?
7. What is the total overhead variance?
8. Evaluate the variances for this company for January. What do these variances suggest to management?