Question

The Morgan Restaurant Group manufactures the bags of frozen French fries used at its franchised restaurants. Last​ week, Morgan's purchased and used 102,000 pounds of potatoes at a price of $ 0.80 per pound. During the​ week, 2,000 direct labor hours were incurred in the plant at a rate of $ 12.50 per hour. The standard price per pound of potatoes is $ 0.90​, and the standard direct labor rate is $ 12.35 per hour. Standards indicate that for the number of bags of frozen fries​ produced, the factory should have used 99,000 pounds of potatoes and 1,700 hours of direct labor.
a. Determine the direct material price and quantity variances. Be sure to label each variance as favorable or unfavorable.
b.Think of a plausible explanation for the variances found in Requirement 1.
c. Determine the direct labor rate and efficiency variances. Be sure to label each variance as favorable or unfavorable.
d. Could the explanation for the labor variances be tied to the material? variances? Explain.

Answer 1

Answer:

a. The direct material price is $ 20,400 Favourable  and the direct material  quantity variances is 3,000 unfavourable

b. Since the actual rate per unit of potatoes was less than the standard set, it resulted in a favourable variance of $20,400.

But the quantity used was more than the set standard quantity allotted. Therefore the quantity variance was unfavourable by 3.000

Thus, an overall favourable profit to the organisation was $17,400 as reflected by the total material cost variance

c. The direct labor rate is $ 300 Unfavourable  and efficiency variance is $3,705 unfavourable

d. Since both the actual hours taken to complete the work and the rate per hour were more than the set standarts, therefore it resulted in an overall unfavourable variance

Explanation:

a. To calculate the direct material price and quantity variances we have to use the following formula:

Material price variance = (Standard rate - actual rate )× actual quantity used

= ($1 - $0.80) ×  102,000

= $ 20,400 Favourable

Material quantity variance = ( Standard Qty - actual qty used ) × standard rate per unit

= ( 99,000 -  102,000 ) × $1

= 3,000 unfavourable

Total material cost variance = ( 99,000× 1) - (102,000×0.80)

= $ 17,400 favourable

b. The plausible reasons might be as follows :

Since the actual rate per unit of potatoes was less than the standard set, it resulted in a favourable variance of $20,400.

But the quantity used was more than the set standard quantity allotted. Therefore the quantity variance was unfavourable by $3.000

Thus, an overall favourable profit to the organisation was $17,400 as reflected by the total material cost variance.

c. Direct labor rate variance = ( Std. Rate - actual rate) × actual hrs worked

= ($12.35 - $12.50) × 2,000 hrs

= $ 300 Unfavourable

Labor efficiency variance = (Std. Hrs - Actual hrs )× std rate per hour

= (1,700 - 2,000) × $12.35

= $3,705 unfavourable

So, total labour cost variance = (1700×12.35) - (2,000×12.50)

= $4,005 unfavourable

4 . The plausible reasons for the same are as follows:

Since both the actual hours taken to complete the work and the rate per hour were more than the set standarts, therefore it resulted in an overall unfavourable variance