Requirement

Compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest All-Star Fender's managers have been making trade-offs? Explain.

All-Star Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018, using 141,000 square feet of extruded vinyl purchased at $1.25 per square foot. Production required 440 direct labor hours that cost $15.00 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of $1.30 per square foot. The labor standard was 0.025 direct labor hour per fender, at a standard cost of $14.00 per hour.

Formula Variance

Direct materials cost variance = (AC - SC) x AQ = $7,050 F

Direct labor variance cost variance = (AC - SC) x AQ = $440 U

Direct materials efficiency variance = (AQ - SQ) x SC = $1,300 U

Direct labor efficiency variance = (AQ - SQ) x SC = $840 F

Does the pattern of variances suggest All-Star Fender's managers have been making trade-offs? Explain.

The ___a.___ direct materials cost variance combined with the _____b.__ direct materials efficiency variance suggests that managers may have used ___c.____ direct materials. The net effect on the total direct materials variance is __d.___ .

Click to select the answer.

* a. is either favorable (F) or unfavorable (U). b. is favorable (F) or unfavorable (U). c. is higher-quality or lower-quality d. is favorable (F) or unfavorable (U).