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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.

Compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest Quality Fender's managers have been making trade-offs? Explain.

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 = Variance

Actual cost (AC) Standard cost (SC) Actual quantity (AQ) Standard quantity (SQ) Direct Materials 145,000 sq. ft. 140,000 sq. ft. 1.25 per sq. ft. ▼ 1.30 per sq. ft. Direct materials cost variance = Direct labor cost variance = $ Formula Direct Labor Now we can determine the cost variances for direct materials and direct labor and identify whether each variance is favorable (F) or unfavorable (U). For costs, a variance is favorable when actual costs were less than the standard and unfavorable when actual costs exceeded the standard. 14.00 per hr. ▼ 13.00 per hr. (AC-SC) × AQ = ( (AC-SC) × AQ = ( 440 hrs ▼ 480 hrs $ 1.25 $14.00 - $ = $ $1.30 ) 145,000 X 440 $13.00 ) × = Variance 7,250 F 440 U Determine the efficiency variances for direct materials and direct labor and identify whether each variance is favorable (F) or unfavorable (U). In regards to efficiency, a variance is favorable when the actual quantity was less than the standard and unfavorable when the actual quantity exceeded the standard.

Formula Direct materials efficiency variance = (AQ - SQ) × SC Direct labor efficiency variance (AQ - SQ) × SC Does the pattern of variances suggest Great Fender's managers have been making trade-offs? Explain. Efficiency Variance Cost Variance Direct materials Direct labor $ 7,250 F 440 U = Direct materials Direct labor = ( = ( 145,000 440 U 520 F 6,500 140,000) $ 1.30 480 ) * $ 13.00 = = Variance $ 6,500 U 520 F GA 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?