Barberry, Inc. manufactures a product called Fruta. The companyused a standard cost system and has established the followingstandards for one unit of Fruta:
Standard Quality Standard Price/Rate Standard Cost
Direct Materials 1.5 pounds $6.00 per pound $ 9.00
Direct Labor 0.6 hours $12.00 per hour 7.20
Variable Man. Overhead 0.6 hours $2.50 per hour 1.50
During June, the company recorded this activity related toproduction of Fruta:
a. The company produced 3,000 units during June.
b. A total of 8,000 pounds of material were purchased at a cost of$46,000.
c. There was no beginning inventory of materials; however, at theend of the month, 2,000 pounds of material remained in endinginventory.
d. The company employs 10 persons to work on the production ofFruta. During June, they worked an average of 160 hours at anaverage of $12.50 per hour.
e. Variable manufacturing overhead is assigned to Fruta on thebasis of direct labor-hours. Variable manufacturing overhead costsduring June totaled $3,600.
The company’s management is anxious to determine the effieciency ofFruta production activities.
Required:
1. For direct materials:
a. Compute the price and quantiy variance.
b. The materials were purchased from a new supplier who is anxiousto enter into a long-term purchase contract. Would you recommendthat the company sign the contract? Why?
2. For labor employed in the production of Fruta:
a. Compute the rate and efficiency variances.
b. In the past, the 10 persons emploted in the production of Frutaconsisted of 4 senior workers and 6 assistants. During June, thecompany experimented with 5 senior workers and 5 assistants. Wouldyou recommend that the new labor mix be continued? Explain.
3. Compute the variable overhead rate and efficiency variances.What relation can you see between the efficiency variance and thelabor efficiency variance?
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