Camping for Fun, Inc., produces a variety of camping products on a year-round ba

Question

Camping for Fun, Inc., produces a variety of camping products on a year-round basis. The best-selling item is a compact portable camping stove made from sheets of rust-free aluminum. Production of this stove requires two main operations: cutting/assembly and coating. The basic direct materials use are aluminum sheeting, a polyurethane base coating, and a gas jet assembly. Quantity, time, and cost standards for the camping stove are as follows:

Direct materials consist of sheet aluminum (two 2-by-3-meter sheets per stove at $1.15 per sheet), 1.2 liters of coating materials per stove at $.80 per liter, and a gas jet assembly purchased at $11.30. Direct labor in the Cutting/Assembly Department is expected to produce 50 stoves per hour at $9.50 per hour. Direct Labor in the Coating Department can handle 32 stoves per hour at $8 per hour. Normal capacity is 126,000 stoves per year.

The firm actually produced 120,000 units during the year, and the production records contain the following information:

For direct materials, the firm used 241,200 sheets of aluminum at $1.10 per sheet, 148,500 liters of coating at $0.77 per liter, and 120,100 gas jet assemblies costing a total of $1,369,140. Direct lobor in the Cutting/Assembly Department amounted to 2,800 hours at $9.25 per hour; in Coating Department, it amounted to 3,560 hours at $7.50 per hour.

Using the information provided, determine the following (remember to indicate whether the variance is favorable or unfavorable):

a. Standard hours allowed for the Cutting/Assembly and Coating Departments for the year(by department)
b. Direct materials price variances (by material)
c. Direct materials quantity variances (by material)
d. Direct labor rate variances (by department)
e. Direct labor efficiency variances (by department)

Explanation / Answer

a) Standard hours allowed for the Cutting/Assembly = 120000/50 = 2400

Standard hours allowed for the Coating = 120000/32 = 3750

b)Direct material Price Variance of

Alumunium Sheet = (1.15-1.10)*241200 = $12060 favorable

polyurethane base coating = (0.80-0.77)*148500 = $4455 favorable

gas jet assembly= 11.30*120100-1369140 = $12010 unfavorable

Total Material Price Variance = 12060+4455-12010 = $4505 favorable

c) Direct material quantity Variance of

Alumunium Sheet = (240000-241200)*1.15 = $1380 unfavorable

polyurethane base coating = (144000-148500)*0.80 = $3600 unfavorable

gas jet assembly= (120000-120100)*11.30 = $1130 unfavorable

Total Material Quantity Variance = 1380+3600+1130 = $6110 unfavorable

d. Direct labor rate variances (by department) of

Cutting/Assembly Department =(9.50-9.25)2800 = $700 favorable

Coating Department=(8-7.50)*3560 = $1780 favorable

Total Direct labor rate variances = 700+1780 = $2480 favorable

e. Direct labor efficiency variances (by department) of

Cutting/Assembly Department =(2400-2800)*9.50 = $3800 unfavorable

Coating Department=(3750-3560)*8 = $1520 favorable

Total Direct labor efficiency variances = 3800-1520 = $2280 unfavorable

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