Standard Quantity Standard Price or Rate Standard Cost
Direct materials 1.5 pounds $6 per pound $9.00
Direct labor 0.6 hours $12 per hour 7.20
Variable overhead 0.6 hours $2.50 per hour 1.50
The following activities were recorded by the company relative to the production of Fruta:
a. The company produced 3,000 units during the month.
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 on hand to start the month; at the end of the month, 3,000 pounds of material remained in the warehouse unused.
d. The company employs 10 persons to work on the production of Fruta. During June, each worked an average of 160 hours at an average rate of $12.50 per hour.
e. Variable overhead is assigned to Fruta on a basis of direct labor hours. Variable overhead costs during the month totaled $3,600.
If management is anxious to determine the efficiency of the activities surrounding the production of Fruta, (1) compute the materials price and quantity variances; (2) compute the labor rate and efficiency variances; (3) compute the variable overhead spending and efficiency variances; (4) compute the total materials variance; (5) compute the total labor variance; (6) compute the total variable overhead variance; (7) compute the total variance and (8) what would you recommend to management? (120 points)
2. The Good Buy Company produces a single product. The cost characteristics of the product and of the manufacturing plant are given below:
Number of units produced each year . . . . . . . . . . . . . . 6,000
Variable costs per unit:
Direct materials $2
Direct labor $4
Variable manufacturing overhead $1
Variable selling & administrative expense $3
Fixed costs per unit:
Manufacturing overhead $30,000
Selling & administrative expense $10,000
Under the variable costing method (1) compute the cost of a unit of product and (2) prepare a variable costing income statement if 5,000 units are sold at a price of $20. Assume beginning inventory is equal to zero (0). (30 points)
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