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Carefully review the result of this analysis and consider the meaning of cost and efficiency variances. What does the favorable direct material cost variance and unfavorable direct materials efficiency variance suggest about quality of direct materials that were being used? What does the unfavorable direct labor cost variance and favorable direct labor efficiency variance suggest about quality of labor that was being used?
Quality Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018, using 141,000 square feet of extruded vinyl purchased at $1.25 per square foot. Production required 450 direct labor hours that cost $13.50 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of $1.30 per square foot. The labor standard was 0.027 direct labor hour per fender, at a standard cost of $12.50 per hour.
Read the requirement. Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Direct materials cost variance Direct labor cost variance Formula (AC - SC) × AQ (AC-SC) * AQ Variance $ 7,050 F 450 U Select the required formulas, compute the efficiency variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance