The Summerchew Company, recognizing that chewing gum has an adverse effect on the consumers’ teeth and that chewing tobacco is gross, has developed a chewing product from kale. Standard costs for 1,000 lbs. of chewing kale are as follows:

Direct Materials:

	Quantity	×	+       Price	=	Cost
Kale	600		$1.00		$600
Elasticizer syrup	200		$0.80		160
Flavor disguiser	200		$2.20		440
Input	1,000 lbs				$1,200	=$1.20 per lb.*

*Weighted average.

Labor:

Producing 1,000 pounds of finished product required 20 hours at $18.00 per hour or $0.36 per lbs. of the finished product.

Overhead:

Variable OH is estimated to be $5 per direct labor hour or $0.10 per pound.

For fixed OH, the company has budgeted sales and production of 420,000 pounds of kale chew and $210,000 of fixed overhead ($17,500 per month). As a result, the company’s standard cost of fixed OH is $25 per labor hour or $0.50 per pound.

Actual costs for March are as follows.

Materials	Beginning Inventory	Purchases in January	Ending Inventory
Kale	10,000 lbs	16,000 lbs@ 0.78	1,500 lbs
Elastisizer Syrup	1,200 lbs	3,000 lbs @ 0.84	400 lbs
Flavor Disguiser	1,500 lbs	3,.200 lbs @ 2.42	1,100 lbs

Actual direct labor hours and costs for January are 600 hours at $10,108. The actual overhead for the month is $22,000, Actual finished production for January is 31,500 lbs.

Calculate:

1. Materials price and quantity variances.
2. Labor rate and efficiency variances.
3. Overhead variances using the three variance method.

Answer rating: 100% (QA)

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