Question
The following unrelated situations affect one or more standard cost variances for materials, labor (assembly), and overhead: 1. Lois Jones, a production worker, announced her
The following unrelated situations affect one or more standard cost variances for materials, labor (assembly), and overhead:
1. Lois Jones, a production worker, announced her intent to resign to accept another job paying $1.50 more per hour. To keep Lois, the production manager agreed to raise her salary from $7.00 to $8.75 per hour. Lois works an average of 175 regular hours per month.
2. The materials purchasing manager purchased 5,000 units of component K2X from a new source at a price $14 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 5 percent. The higher rate of defects reduced the output of workers (who earn $9 per hour) from 20 units per hour to 15 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 $0.30 for each of the components (good and bad) in the discount batch. Variable manufacturing overhead is applied at the rate of $3 per direct labor hour. The defective units also caused a 20-hour increase in total machine hours. The actual cost of electricity to run the machines is $2 per hour.
For each of the preceding situations, determine which standard cost variance(s) will be affected, and compute the amount of the effect for one month on each variance. Indicate whether the effect is favorable or unfavorable. Assume that the standards are not changed in response to these situations. (Round calculations to two decimal places.
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