Explain the rate and efficiency variances

Question

Barberry, Inc., manufactures a product called Fruta. The company uses a standard cost system and has established the following standards for one unit of Fruta:

	Standard Quantity	Standard Price or Rate			Standard Cost
Direct materials	1.6 pounds	$	6.10	per pound	$	9.76
Direct labor	0.6 hours	$	11.90	per hour		7.14
Variable manufacturing overhead	0.6 hours	$	2.80	per hour		1.68
					$	18.58

During June, the company recorded this activity related to production of Fruta:

a.	The company produced 3,300 units during June.
b.	A total of 8,900 pounds of material were purchased at a cost of $52,510.
c.	There was no beginning inventory of materials; however, at the end of the month, 2,300 pounds of material remained in ending inventory.
d.	The company employs 10 persons to work on the production of Fruta. During June, they worked an average of 158 hours at an average rate of $12.60 per hour.
e.	Variable manufacturing overhead is assigned to Fruta on the basis of direct labor-hours. Variable manufacturing overhead costs during June totaled $3,950.

The company's management is anxious to determine the efficiency of Fruta production activities.

Required:

1.	For direct materials:

a.

Compute the price and quantity variances. (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Materials price variance	$	F None U
Materials quantity variance	$	F None U

b.	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?
	Yes No

2.	For labor employed in the production of Fruta:

a.

Compute the rate and efficiency variances. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Labor rate variance	$	F None U
Labor efficiency variance	$	F None U

b.	In the past, the 10 persons employed in the production of Fruta consisted of 4 senior workers and 6 assistants. During June, the company experimented with 5 senior workers and 5 assistants. Would you recommend that the new labor mix be continued?
	Yes No

3a.

Compute the variable overhead rate and efficiency variances. (Input all amounts as positive values. Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Variable overhead rate variance	$	F None U
Variable overhead efficiency variance	$	F None U