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# Production and Cost Variances Analysis

Beta Company produces two products, A and B, each of which uses materials X and Y. The following unit standard costs apply:

Material X Material Y Direct Labor
Product A 4 lbs @ \$13 1 lb @ \$8.50 1/5 hr @ \$14
Product B 6 lbs @ \$13 2 lbs@ \$8.50 1/3 hr @ \$14

During November, 4,200 units of A and 3,600 units of B were produced. Also, 39,000 pounds of X were purchased at \$12.40 per pound and 11,000 pounds of Y were purchased at \$8.70 per pound: all of these materials (but no other materials) were used for the month's production. This production required 2,025 direct labor-hours at \$13.60 per hour.

Required:

a. Calculate the material price and usage variances for the month.
b. Calculate the labor rate and efficiency variances for the month.
c. How would your answers to (a) and (b) change if you had been told the November's planned production activity was 4,000 units of A and 4,000 units of B?
d. How would your answers to (a) and (b) change if you had been told that November' sales were 4,000 units of A and 3,500 units of B?

#### Solution Preview

a. Calculate the material price and usage variances for the month.

Standard consumption of Material X= 38400
Standard consumption of Material Y= 11400

Materials price variance:
for X

483600 - 507000 = -\$23,400 Favorable
39000 X \$12.40 39,000 X \$13.00

for Y

95700 - 93500 = \$2,200 Unfavorable
11000 X \$8.70 11,000 X ...

#### Solution Summary

This solution shows step-by-step calculations enclosed in an Excel file to determine the material price, usage variances for the month, labor rate, efficiency variances and changes due to varying planned production activity in November.

\$2.19