A company that uses a standard cost accounting system manufactured 20,000 boat fenders during 2014, using 144,000 square feet of extruded vinyl purchased at $1.05 per square foot. Production required 420 direct labor hours that cost $13.50 per hour. The direct material standard was 0.025 direct labor hour a per fender, at the standard cost of $12.50 per hour.
1. Compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest the company's managers have been making trade-offs? Explain. Consider this additional information: Static budget variance overhead=$5,500. Static budget fixed overhead-$22,000. Static budget direct labor hours-550 hours Static budget number of units-22,000 units 2. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. 3. Explain why the variances are favorable or unfavorable.