Question

Top Hand company makes a tote bag and uses a standard cost system. Each tote bag should use 2 yards of material that costs $5.00 per yard. Stitching on each bag should take a half hour of labor time of line workers who are paid an average wage of $20 per hour. Last month 15,000 tote bags were produced.

Looking at the production records, you find that $144,000 was spent to purchase the 32,000 yards of material used in production. Stitchers worked 7,200 hours and were paid $158,400.

You have been asked to produce a production report.

Required: Be sure to label each variance as F – favorable or U – unfavorable.

1. What is the standard materials costs for a tote bag and what is the standard labor cost to produce a tote bag?

2. What were the total direct materials and direct labor variances?

3. Calculate the following variance breakdowns for last month’s production:

            Materials price variance

            Materials usage variance

            Labor price (rate) variance

            Labor usage (efficiency) variance

Answer 1