Question
Barberry, Inc., manufactures a product called Fruta. The company uses a standard cost system and has established the following standards for one unit of Fruta:
Barberry, Inc., manufactures a product called Fruta. The company uses a standard cost system and has established the following standards for one unit of Fruta: |
Standard Quantity | Standard Price or Rate | Standard Cost | ||||
Direct materials | 1.60 pounds | $ | 6.00 | per pound | $ | 9.60 |
Direct labor | 0.90 hours | $ | 13.00 | per hour | 11.70 | |
Variable manufacturing overhead | 0.90 hours | $ | 2.00 | per hour | 1.80 | |
$ | 23.10 | |||||
During June, the company recorded this activity related to production of Fruta: |
a. | The company produced 3,100 units during June. |
b. | A total of 8,100 pounds of material were purchased at a cost of $46,980. |
c. | There was no beginning inventory of materials; however, at the end of the month, 2,050 pounds of material remained in ending inventory. |
d. | The company employs 15 persons to work on the production of Fruta. During June, they worked an average of 170 hours at an average rate of $13.50 per hour. |
e. | Variable manufacturing overhead is assigned to Fruta on the basis of direct labor-hours. Variable manufacturing overhead costs during June totaled $4,800. |
The company's management is anxious to determine the efficiency of Fruta production activities. |
Required: |
1. | For direct materials: |
a. | Compute the price and quantity variances.(Round your "price per pound" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) |
b. | The materials were purchased from a new supplier who is anxious to enter into a long term purchase contract. Would you recommend that the company sign the contract? | ||
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2. | For labor employed in the production of Fruta: |
a. | Compute the rate and efficiency variances. (Round your "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) |
b. | In the past, the 15 persons employed in the production of Fruta consisted of 6 senior workers and 9 assistants. During June, the company experimented with 8 senior workers and 7 assistants. Would you recommend that the new labor mix be continued? | ||
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3a. | Compute the variable overhead rate and efficiency variances.(Round your "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) |
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