Santa Rosa Industries uses a standard-costing system to assist in the evaluation of operations. The company has had considerable trouble in recent months with suppliers and employees, so much so that management hired a new production supervisor, Frank Schmidt. The new supervisor has been on the job for five months and has seemingly brought order to an otherwise chaotic situation. The vice president of manufacturing recently commented that . . . Schmidt has really done the trick. The change to a new direct-material supplier and Schmidts team-building/morale-boosting training exercises have truly brought things under control. The VPs comments were based on both a plant tour, where he observed a contented workforce, and a review of the following data, which was excerpted from a performance report:

Direct-material variances	$	3,340	Favorable
Direct-labor variances	$	6,150	Favorable

These variances are especially outstanding, given that the amounts are favorable and small. (Santa Rosas budgeted material and labor costs generally each average about $366,000 for similar periods.) Additional data follow.

• The company purchased and consumed 46,600 pounds of direct materials at $9.30 per pound, and paid $18.10 per hour for 22,500 direct-labor hours of activity. Total completed production amounted to 10,600 units.
• A review of the firms standard cost records found that each completed unit requires 4.0 pounds of direct material at $10.30 per pound and 2.5 direct-labor hours at $15.60 per hour.

Required: 1. On the basis of the information contained in the performance report, should Santa Rosa be concerned about its variances? 2-a. Calculate the companys direct-material variances. 2-b. Calculate the companys direct-labor variances. 3. On the basis of your answers to requirement (2), should Santa Rosa be concerned about its variances? 4. Are things going as smoothly as the vice president believes? 5. Is it possible that some of the companys current problems lie outside Schmidts area of responsibility?