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Thomas Pie Company makes and sells pies to retail stores. One of the company's most popular pies is pecan pie, which sells for $8.00 per
Thomas Pie Company makes and sells pies to retail stores. One of the company's most popular pies is pecan pie, which sells for $8.00 per pound. The standard cost per pound of pecan pie is presented below. The following cost information is based on the company's normal monthly production of 400,000 pounds. Standard Cost Item Quantity Unit Cost Total Cost Direct materials: Pie mix 10 oz. $.02 per oz. Corn Syrup 5 oz. .15 per oz. Pecans 1 oz. .50 per oz. Direct labor: Mixing Baking 1 min. 2 min. $14.40 per hr. 18.00 per hr. $32.40 per direct-labor hr. Variable overhead 3 min. $1.62 Total standard cost per pound $3.91 *Direct-labor rates include employee benefits. Applied on the basis of direct-labor hours. By using these standard costs, Samantha Clark, management accountant of the company, prepares monthly budget reports for July. The variance report is presented below. Variance Report for July Static Budget Actual Units (in pounds) 400,000 450,000 Revenue $3,200,000 $3,555,000 Direct material $ 580,000 $ 865,000 Direct labor 336,000 348,000 Variable overhead 648,000 750,000 Total variable costs $1,564,000 $1,963,000 Contribution margin $1,636,000 $1,592,000 Variance 50,000 F $355,000 F $285,000 U 12,000 U 102,000 U $399,000 U $ 44,000 U Anna Woodman, president of the company, is not satisfied with the results because the product's contribution margin decreased. Woodman has asked Clark to investigate this decrease and Clark has prepared the following report for the analysis. Report for July Actual Quantity Actual Cost Cost Item Direct materials: Pie mix Corn Syrup Pecans $ 4,650,000 oz. 2,660,000 oz. 480,000 oz. 93,000 532,000 240,000 Direct labor: Mixing Baking Variable overhead Total variable costs 450,000 min. 800,000 min. 108,000 240,000 750.000 $1,963.000 Required: Compute the following variances. Indicate whether a variance is favorable or unfavorable where appropriate. 1. Direct-material quantity variance 2. Direct-labor rate variance 3. Direct-labor efficiency variance 4. Variable-overhead spending variance 5. Variable-overhead efficiency variance
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