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# Labor rate and efficiency variances

Part 4
This part refers to Chapter 9 -Variance Analysis.

It will be graded on the accuracy of your solution and not the application of excel. You do not need to use
excel formulas, but you do need to show your work.

Bonny Beauty manufactures a line of cosmetics. Their most popular beauty cream sells for \$65 per jar.
The following is the standard cost of producing one jar of beauty cream.

Direct Direct
Materials Labor

Standard Quantity 1.25 ounces 0.85 hours
Standard Price or Rate \$6 per ounce \$9 per hour

During the month of February, the following activity was recorded in the production of the beauty cream.

a. There was no beginning inventory of materials on hand to start the month; at the end of the month,
200 ounces of material remained in the warehouse unused.
b. Material purchased was 13,000 ounces at a cost of \$71,500.
c. The company employs 50 production workers to produce the beauty cream. During the month, each worked an average of
140 hours at an average rate of \$10 per hour.
d. During the month, 9,240 jars of beauty cream were produced and 9,000 were sold.

Your job is to determine the efficiency of the activities of producing this product.

Required:
A. For materials used in the production of the beauty cream:
1. Compute the price and usage variance. (Price variance should be computed at the earliest possible point.)
Material price variances should be based on material purchased, since you want to isolate the variance as soon as possible.
Material usage variance should be based on materials used, since this is monitoring the production efficiency.
2. The materials were purchased from a new supplier who is anxious to enter into a long-term purchase contract.
Would you recommend that the company sign the contract? Explain why or why not.

B. For direct labor employed in the production of the drink mix:
1. Compute the rate and efficiency variances.
2. In the past, the 50 production workers consisted of 20 senior chemists and 30 assistants. Since a new material
was purchased this month, the company chose to use 30 senior chemists and 20 assistants. Was this a good idea?
Would you recommend that the new labor mix be continued? Explain why or why not.
(See attached file for full problem description)

#### Solution Preview

Please see the attached file.Part 4
This part refers to Chapter 9 -Variance Analysis.

It will be graded on the accuracy of your solution and not the application of excel. You do not need to use
excel formulas, but you do need to show your work.

Bonny Beauty manufactures a line of cosmetics. Their most popular beauty cream sells for \$65 per jar.
The following is the standard cost of producing one jar of beauty cream.

Direct Direct
Materials Labor

Standard Quantity 1.25 ounces 0.85 hours
Standard Price or Rate \$6 per ...

#### Solution Summary

This provides the steps to calculate the Labor rate and efficiency variances

\$2.19