Rhodes Corporation manufactures a product with the following standard costs:
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Direct materials (20 yards @ $1.85 per yard)
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$ 37.00
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Direct labor (4 hours @ $12.00 per hour)
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48.00
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Variable factory overhead (4 hours @ $5.40 per hour)
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21.60
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Fixed factory overhead (4 hours @ $3.60 per hour)
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14.40
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Total standard cost per unit of output
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$121.00
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Standards are based on normal monthly production involving 2,000 direct labor hours.
The following information pertains to the month of July:
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Direct materials purchased (16,000 yards @ $1.80 per yard)
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$28,800
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Direct materials used (9,400 yards)
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Direct labor (1,880 hours @ $12.20 per hour)
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22,936
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Actual factory overhead
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16,850
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Actual production in July: 460 units
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a.
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Compute the following variances for the month of July, indicating whether each variance is favorable or unfavorable:
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(1)
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Materials purchase price variance
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(2)
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Materials quantity variance
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(3)
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Labor rate variance
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(4)
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Labor efficiency variance
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b. Give potential reasons for each of the variances. Be sure to consider inter-relationships among variances.