Class Quest, Inc. uses a standard cost system for its product, Fruta. For the month of June, the companyexpectsto produce 10,000 units of Fruta using 20,000 pounds of material, and 4,000 direct labor hours. The standard price of materials is $10.00 per pound while the labor standard rate is $15.00 per hour. Variable overhead is assigned to the product on the basis of direct labor hours at the rate of $5.00 per direct labor hour.
During June, the company recorded this activity related to production of Fruta:
- The company actually produced 11,000 units of Fruta during June.
- Materials ofXpounds were purchased at a cost of $157,500. There were 6,000 pounds in beginning inventory of materials; 24,000 pounds were used in production; and at the end of the month, 3,000 pounds of material remained in ending inventory.
- The company used 4,750 hours of direct labor and paid a total of $59,375.
- Actual variable manufacturing overhead costs during June totaled $23,750.
REQUIRED 1: Compute the following variances
Class Quest, Inc. uses a standard cost system for its product, Fruta. For the month of June, the company expects to produce 10,000 units of Fruta using 20,000 pounds of material, and 4,000 direct labor hours. The standard price of materials is $10.00 per pound while the labor standard rate is $15.00 per hour. Variable overhead is assigned to the product on the basis of direct labor hours at the rate of $5.00 per direct labor hour. During June, the company recorded this activity related to production of Fruta: a. The company actually produced 11,000 units of Fruta during June. b. Materials of x pounds were purchased at a cost of $157,500. There were 6,000 pounds in beginning inventory of materials; 24,000 pounds were used in production; and at the end of the month, 3,000 pounds of material remained in ending inventory. c. The company used 4,750 hours of direct labor and paid a total of $59,375. d. Actual variable manufacturing overhead costs during June totaled $23,750. REQUIRED 1: Compute the following variances Material Price Vanance Material Quantity Variance Total Variable Overhead Variance Total Maternal Variance REQUIRED 2: What factors might have caused the quantity variance? Select all that apply REQUIRED 2: What factors might have caused the quantity variance? Select all that apply 9 Insufcient training of direct labor employees 9 Theft of direct materials a Poor quality of materials a Machine break downs a Wastage of direct materials REQUIRED 3: The direct materials were purchased from a new supplier, who is eager to enter into a ongterm contract. Using the material varainaces, should the company sign this contract? Yes, while the material quantity variance is unfavorable, the price variance is more favorable, making the total material variance favorable. No, both the material quantity variance and the material price variance are unfavorable. No, while the material quantity variance is unfavorable, the price variance is less favorable, making the total material variance unfavorable. Yes, both the material quantity variance and the material price variance are favorable. a Financial stability of the vendor a Reputation of the vendor a Quality control systems of the vendor 9 Length of the contract period a Market forecasts on future direct material prices ? Insufficient training of direct labor employees 2 Theft of direct materials ? Poor quality of materials 2 Machine break downs 2 Wastage of direct materials REQUIRED 3: The direct materials were purchased from a new supplier, who is eager to enter into a ong-term contract. Using the material varainaces, should the company sign this contract? (Click to select) REQUIRED 4: What other factors, other than the favorableness of the price, might the company want to consider before signing the contract? ? Financial stability of the vendor ? Reputation of the vendor 2 Quality control systems of the vendor ? Length of the contract period ? Market forecasts on future direct material prices ? Delivery standard of the vednor ? Purchase terms from the vendor. For example, does the vendor require bulk purchases only
