Measuring the Effects of Decisions on Standard Cost Variances (Comprehensive) The following five unrelated situations affect one or more standard cost variances for materials. labor [assemblyi and overhead. For each of the situations. compute the amount ofthe effect for one month on each variance listed. Indicate whether the effect is favorable or unfavorable Assume that the standards are not changed in response to these situations. Note: Round your answers to two decimal places. i . Sally Smith. a production worker. announced her intent to resign to accept another Job paying $i .75 more per hour. To keep Sally, the production manager agreed to raise her salary from iii 2 to $'i 4 per hour. Sally works an average of245 regular hours per month. Effect on labor rate variance $ 492 Unfavorable = 2. At the beginning of the month. a supplier of a component used in our product notied us that. because of a minor design improvement, the price will be increased by i0% above the current standard price of $115 per unit. As a result ofthe improved design. we expect the number of defective components to decrease by 70 units per month. On average, 1,680 units of the component are purchased each month. Defective units are identified prior to use and are not returnable. Effect on materials price variance $ 0 Unfavorable 6 Effect on materials quantity variance 5 D Unfavorable v 3. in an effort to meet a deadline on a rush order in Depar'tmentl'ir the plant manager reassigned several higher-skilled workers from Department B, for a total of 504 labor hours. The average salary of the Department B workers was $2.15 more than the standard $11.00 per hour rate ofthe Department A workers. Since they were notaccustomed to the work. the average Department B worker was able to produce only 24 units per hour instead of the standard 36 units per hour. (Consider only the effect on Department A labor variances) 0 Effect on labor rate variance $ 0 0 Effect on labor efficiency variance 55 D 4. Robbie Wallace is an inspector who earns a base salary of $2,800 per month plus a piece rate of 40 cents per bundle inspected. His company accounts for inspection costs as manufacturing overhead. Because of a payroll department error iniune, Robbie was paid $2,100 plus a piece rate of 60 cents per bundle. He received gross wages totaling $2,940. Hint: Robbie's compensation has both paid $2,100 plus a piece rate of 60 cents per bundle. He received gross wages totaling $2,940. Hint: Robbie's compensation has both fixed and variable components. 0 Effect on variable overhead spending variance $ 0 0 Effect on fixed overhead budget variance 5 0 5. The materials purchasing manager purchased 7,000 units of component KZX from a new source at a price $20 below the standard unit price of $200. These components turned out to be of extremely poor quality With defects occurring at three times the standard rate of 6%. The higher rate of defects reduced the output of workers [who earn $'i 2 per hour! from 20 units per hour to 16 units per hour on the units containing the discount components. Each finished unit contains one K2X component. To appease the workers (who were irate at having to work with inferior components}, the production manager agreed to pay the workers an additional $0.50 for each ofthe components [good and bad) in the discount batch. Variable manufacturing overhead is applied at the rate of $6.00 per direct labor hour. The defective units also caused a 25 hour increase in total machine hours The actual cost ofelectricity to run the machines is $2.00 per hour. 0 Effect on materials price variance 5 0 0 Effect on materials quantity variance $ 0 0 Effect on labor rate variance 5 0 0 Effect on labor efficiency variance S D 0 Effect on variable overhead spending variance $ 0 0 Effect on variable overhead efficiencyvariance $ 0