Lays Potato Chips is examining their Wavy Lays chip line. They began the year expecting to produce 500,000 bags of potato chips. They projected that each bag would require 3 pounds of potatoes and 1.5 hours of labor to manufacture. They planned to pay $2 per pound for potatoes and $20 per hour for labor. They also budgeted $900,000 for variable manufacturing overhead costs and $450,000 of fixed manufacturing overhead costs, with both variable and fixed manufacturing overhead costs being allocated based on direct labor hours.

At the end of the year, Lay's finds that they produced 880,000 bags of potato chips, using 3.25 pounds of potato's per bag and 1.25 hours of labor per bag. Due to significant inflation, the purchasing department made a deal with the supplier and purchased 3,000,000 pounds of potatoes for a per-pound price of $3.25. They also spent $22 per hour for direct labor. The Wavy Lays Chip line spent $843,000 on variable manufacturing overhead costs and $562,000 on fixed manufacturing overhead costs.

Required:

a) Calculate the direct labor price variance (i.e rate variance), efficiency variance, and volume variance.

b) Calculate the direct material price variance, efficiency variance (i.e quantity variance), and volume variance.

c) Calculate the variable overhead spending variance and efficiency variance.

Answer rating: 100% (QA)

a Direct Labor Variances 1 Direct Labor Rate Variance Price Variance Standard Rate 20 per hour Actua... View the full answer