Phono Company manufactures a plastic toy cell phone. The following standards have been established for the toys materials and labor inputs:

Standard

Quantity Standard Price

(rate in $) Standard

Cost

Direct materials 0.5 lb. $ 1.50 $0.75

Direct labor 0.15 hr. 10.00 1.50

During the first week of July, the company had the following results:

Units produced 90,000

Actual labor costs $138,000

Actual labor hours 13,400

Materials purchased and used 44,250 lbs. @ $1.55 per lb

The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in July. Also, a new manufacturing layout was implemented on a trial basis. The new layout required a slightly higher level of skilled labor. The higher-quality material has no effect on labor utilization. Similarly, the new manufacturing approach has no effect on material usage. (Note: Round all variances to the nearest dollar.)

Required:

1. Conceptual Connection: Compute the materials price and usage variances.

Materials price variance $

Unfavorable

Materials usage variance $

Favorable

Assuming that the materials variances are essentially attributable to the higher quality of materials, would you recommend that the purchasing agent continue to buy this quality, or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly.

Go back to the prior quality.

2. Conceptual Connection: Compute the labor rate and efficiency variances.

Labor rate variance $

Unfavorable

Labor efficiency variance $

Favorable

Assuming that the labor variances are attributable to the new manufacturing layout, should it be continued or discontinued?

Discontinued

3. Conceptual Connection: Refer to Requirement 2. Suppose that the industrial engineer argued that the new layout should not be evaluated after only one week. His reasoning was that it would take at least a week for the workers to become efficient with the new approach. Suppose that the production is the same the second week and that the actual labor hours were 13,200 and the labor cost was $132,000. If there is no variance, enter "0" and select "No variance" from the dropdown.

Labor rate variance $

No variance

Labor efficiency variance $

Favorable

Should the new layout be adopted? Assume the variances are attributable to the new layout.

Yes

If so, what would be the projected annual savings?

$