Q1) Maui Muumuus produces traditional Hawaiian dresses. Company was started early in 2002, and following standards for materials and labor were developed at that time:
| Materials |
3 yards at $6 per yard |
| Labor |
1.5 hours at $10 per hour |
In May 2008, Maui Muumuus hired new cost accountant, Sally Rogers. At the end of May, Sally was reviewing variances computed for month and was amazed to find that standards had never been revised as company started. Actual data for May 2008 for material and labor are as follows:
| Materials |
Purchased, 50,000 yards at $7.00
Used in production of 17,200 muumuus, 50,000 yards |
| Labor |
17,800 hours at $13.50 per hour |
Since 2002, material prices have risen 4 percent each year. Though, company can now buy at 94 percent of regular price due to increased volume of purchases. Labor contracts have specified a 5 percent cost-of-living adjustment for each year, beginning in 2003. Because of revising plant layout and purchasing some more efficient machinery, labor time per muumuu has decreased by one-third; also, direct material waste ha been reduced from ¼ yard to 1/8 yard per muumuu.
Questions:
a. Find out material and labor variances based on standards originally designed for the company.
b. Find outthe new standards against which Sally should measure the May 2008 resultys. (Round adjustments annually to the nearest penny.)
c. Calculate variance for material and labor using revised standards.