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Class Quest, Inc
Class Quest, Inc. uses a standard cost system for its product, Fruta. For the month of June, the company expects to produce 10,000 units of Fruta using 20,000 pounds of material, and 4,000 direct labor hours. The standard price of materials is $10.00 per pound while the labor standard rate is $15.00 per hour. Variable overhead is assigned to the product on the basis of direct labor hours at the rate of $5.00 per direct labor hour.
During June, the company recorded this activity related to production of Fruta:
- The company actually produced 11,000 units of Fruta during June.
- Materials of X pounds were purchased at a cost of $157,500. There were 6,000 pounds in beginning inventory of materials; 24,000 pounds were used in production; and at the end of the month, 3,000 pounds of material remained in ending inventory.
- The company used 4,750 hours of direct labor and paid a total of $59,375.
- Actual variable manufacturing overhead costs during June totaled $23,750.
REQUIRED 1: Compute the following variances
Material Price Variance$Material Quantity Variance$Total Material VarianceLabor Rate Variance$Labor Efficiency Variance$Total Labor VarianceVariable Overhead Rate Variance$Variable Overhead Efficiency Variance$Total Variable Overhead Variance
Expert Solution
Material price variance = (Standard Price - Actual Price)*Actual Quantity
= (10- 7.5)* 21,000
= 52500 F
Actual Price = Actual Cost/Actual Quantity
= $157500/21,000
= $7.5
Note: Quantity purchased = Used+ Closing Inventory - Opening Inventory
= 24,000+3,000-6,000
= 21,000
Material quantity variance = (Standard Quantity - Actual Quantity)*Standard Rate
= ((11,000/(10000/20000)) - 24,000)*10
= 20000 U
Total material variance = Material Price Variance + material Efficiency Variance
= 52500 - 20,000
= 32,500F
Labor Rate Variance = (Standard rate - Actual rate)*Actual Hours
= (15 - 12.5 )*4750
=11875 F
Note: Actual rate = Actual Cost/Actual Hours
= 59375 /4750
= 12.5
Labor Efficiency Variance = (Standard Hours - Actual Hours)*Standard Rate
=(4400- 4750)* 15
= 5250 U
Standard hour;
= 10000/ 4000= 2.5
= 11000/ 2.5= 4400
Total labor variance = Labour rate variance + labour efficiency variance
= 11875 - 5250
= 6625 F
Variable Overhead Rate Variance = (Standard rate - Actual rate)*Actual Hours
= (5 - 5)*4750
= NIL
Note: Actual Rate = Actual Cost/Actual Hours
= 23750/ 4750
= 5
Variable Overhead Efficiency Variance = (Standard Hours - Actual Hours)*Standard Rate
= (4400-4750)* 5
= 1,750 U
Total variable overhead variance = Variable Overhead Rate Variance + Variable Overhead Efficiency Variance
= 0+1750
= 1750 U
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