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Quantity Variance and Efficiency Labor Mix

Company manufactures only one product x. The company uses a standard cost system and has established the following standards per unit of product x:

Direct Materials
Standard Quantity Standard Price Standard Cost
3.0 lbs. $12 per lb. $36.00
Direct Labor
1.2 hrs. $15 per hr. $18.00

During the month of May, the following activity was recorded:
1. The company produced 6,000 units
2. A total of 21,000 lbs. of material was used at a cost of $241,500.
3. Each of 40 persons employed to produce the product x, worked an average of 160 hours at a rate of $16 per hour.

a. Compute the direct material price and quantity variance for the month.

b. The direct materials were purchased from a new supplier who is eager to enter into a long term contract. Would you recommend to sign the contract? Explain.

c. In the past, the 40 persons employed in production consisted of 16 experienced workers and 24 assistants. During May, the company experimented with 20 experienced workers and 20 assistants. Would you recommend that Trieste continue this new labor mix? Analyze and explain.

Solution Summary

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