Q19E - Horngren'S Financial And Managerial Accounting

Question

Matthews Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018, using 143,000 square feet of extruded vinyl purchased at \(1.30 per square foot. Production required 400 direct labor hours that cost \)16.00 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of \(1.35 per square foot. The labor standard was 0.028 direct labor hour per fender, at a standard cost of \)15.00 per hour. 

Compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest Matthews Fender’s managers have been making tradeoffs? Explain.

Step-by-Step Solution

Answer

The Material cost variance is $7,150 F and the material efficiency variance is $4,050 U. The Labor cost variance is $3,850 F and the labor efficiency variance is $3,000 F

The production department is going good, but labor is managed properly.

Step 1 Computation of the Material Variance

$\begin{array}{rcl}\mathbf{MaterialCostVariance}& \mathbf{=}& \left(\mathbf{SQforAO}\mathbf{\times }\mathbf{SP}\right)\mathbf{-}\left(\mathbf{AQ}\mathbf{\times }\mathbf{AP}\right)\\ & \mathbf{=}& \left(\mathbf{143}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{1}\mathbf{.}\mathbf{30}\right)\mathbf{-}\left(\mathbf{143}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{1}\mathbf{.}\mathbf{35}\right)\\ & \mathbf{=}& \mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{150}\mathbf{F}\\ & & \end{array}$

$\begin{array}{rcl}\mathbf{MaterialEfficiencyVariance}& \mathbf{=}& \left(\mathbf{SQforAO}\mathbf{-}\mathbf{AQ}\right)\mathbf{\times }\mathbf{SP}\\ & \mathbf{=}& \left(\mathbf{143}\mathbf{,}\mathbf{000}\mathbf{-}\left(\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{7}\right)\right)\mathbf{\times }\mathbf{1}\mathbf{.}\mathbf{35}\\ & \mathbf{=}& \mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{050}\mathbf{U}\\ & & \end{array}$

Step 2 Computation of the Labor Variance

$\begin{array}{rcl}\mathbf{LaborCostVariance}& \mathbf{=}& \left(\mathbf{SHforAO}\mathbf{\times }\mathbf{SR}\right)\mathbf{-}\left(\mathbf{AH}\mathbf{\times }\mathbf{AR}\right)\\ & \mathbf{=}& \left(\mathbf{400}\mathbf{\times }\mathbf{16}\right)\mathbf{-}\left(\mathbf{400}\mathbf{\times }\mathbf{15}\right)\\ & \mathbf{=}& \mathbf{\$}\mathbf{400}\mathbf{U}\\ & & \end{array}$

$\begin{array}{rcl}\mathbf{LaborEfficiencyVariance}& \mathbf{=}& \left(\mathbf{SHforAO}\mathbf{-}\mathbf{AH}\right)\mathbf{\times }\mathbf{SR}\\ & \mathbf{=}& \left(\mathbf{400}\mathbf{-}\left(\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{028}\right)\right)\mathbf{\times }\mathbf{15}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{400}\mathbf{F}\\ & & \end{array}$

Step 3 Trade-offs in Variances made by managers

The purchase manager works very efficiently as he has done good work by acquiring the material at a cost lower than the standard cost.

The production manager was inefficient in the consumption of materials purchased by the purchase manager. But the manager was successful in maintaining the efficiency of labor.

The human resource manager failed and could not appoint labor at a standard cost.