Concept explainers
Calculate and interpret direct material and direct labor variances (Learning Objectives 2 & 3)
The Windam Restaurant Group manufactures the bags of frozen French fries used at its franchised restaurants. Last week, Windam purchased and used 98,000 pounds of potatoes at a price of $0.85 per pound. During the week, 2,100 direct labor hours were incurred in the plant at a rate of $12.45 per hour. The standard price per pound of potatoes is $1.00, and the standard direct labor rate is $12.15 per hour. Standards indicate that for the number of bags of frozen fries produced, the factory should have used 95,000 pounds of potatoes and 2,000 hours of direct labor.
Requirements
- 1. Determine the direct material price and quantity variances. Be sure to label each variance as favorable or unfavorable.
- 2. Think of a plausible explanation for the variances found in Requirement 1
- 3. Determine the direct labor rate and efficiency variances. Be sure to label each variance as favorable or unfavorable
- 4. Could the explanation for the labor variances be tied to the material variances? Explain.
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