Barberry, Inc., manufactures a product called Fruta. The company uses a standard cost system

P11-11 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

1.5 pounds

$6.00 per pound

$9.00

Direct labor

0.6 hours

$12 per hour

7.20

Variable manufacturing overhead

0.6 hours

$2.50 per hour

1.50

$17.70

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

a. The company produced 3,000 units during June.
b. A total of 8,000 pounds of material were
purchased at a cost of $46,000.
c. There was no beginning inventory of materials;
however, at the end of the month, 2,000 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 160 hours at an
average rate of $12.50 per hour.
e. Variable manufacturing overhead is assigned to
Fruta on the basis of direct labor-hours. Variable manufacturing overhead costs
during June totaled $3,600.
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.
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?
Explain.
2. For labor employed in the production of Fruta:
a.Compute the rate and efficiency variances.
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? Explain.
3. Compute the variable overhead rate and
efficiency variances. What relation can you see between this efficiency
variance and the labor efficiency variance?

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