Question

# The Basket Co. produces intricate baskets. The direct materials and direct labor standards for one basket...

The Basket Co. produces intricate baskets. The direct materials and direct labor standards for one basket is as follows:

 Standard Quantity of Hours Standard Rate or Cost Standard Cost per Basket Direct Materials 2 meters of plastic \$2.00/meter \$4.00 Direct Labour 1.5 hours \$12/hour \$18 Variable Overhead 1.5 hours \$4/direct labour hour \$6

The budgeted fixed overhead is \$10,000. The allocation base is direct labour hours which was estimated to be 2,100 hours.

During the most recent month, the following activity was recorded:
The company purchased 4,000 meters of plastic during the month at a total cost of \$7,600. The company used 3,000 meters of the purchased plastic to make 1,400 baskets during the month.

Direct labor costs totaled \$25,480 for hours worked of 1,960.

a. Compute the direct materials price variance. Indicate if it favorable (F) or unfavorable (U).
b. Compute the direct materials quantity variance. Indicate if it is favorable (F) or unfavorable (U).

 AQ* AP Price Variance AQ * SP AQ*SP Efficiency Variance SQ for actual production *SP Direct materials 7600 400 8000 6000 400 5600 Favorable Unfavorable

Workings:

a. Actual cost of purchase (AQ* AP)= \$7600

Actual Quantity * Standard price = 4000 * 4 = \$8000

Price variance = ( 7600- 8000) = 400 Favorable

b. Actual Quantity * Standard Price = 3000 * 2 = \$6000

Standard Quantity for actual production * Standard price = 1400 * \$2 * 2 = \$5600

Efficiency variance = 6000 - 5600 = 400 Unfavorable

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