Phono Company manufactures a plastic toy cell phone. The following standards have beenestablished for the toy's materials and labor inputs:

During the first week of July, the company had the following results:
Units produced .........................................90,000
Actual labor costs ...................................$138,000
Actual labor hours .....................................13,400
Materials purchased and used 44,250 lbs. @ $1.55 per lb
The purchasing agent located a new source of slightly higher-quality plastic,and this material was used during the first week in July. Also, a new manufacturing layout wasimplemented on a trial basis. The new layout required a slightly higher level of skilled labor.The higher-quality material has no effect on labor utilization. Similarly, the new manufacturingapproach has no effect on material usage.
Required:
1. Compute the materials price and usage variances. Assumingthat the materials variances are essentially attributable to the higher quality of materials, wouldyou recommend that the purchasing agent continue to buy this quality, or should the usualquality be purchased? Assume that the quality of the end product is not affected significantly.
2. Compute the labor rate and efficiency variances. Assumingthat the labor variances are attributable to the new manufacturing layout, should it be con-tinued or discontinued? Explain.
3. Refer to Requirement 2. Suppose that the industrial engi-neer argued that the new layout should not be evaluated after only one week. His reasoningwas that it would take at least a week for the workers to become efficient with the newapproach. Suppose that the production is the same the second week and that the actual labor hours were 13,200 and the labor cost was $132,000. Should the new layout beadopted? Assume the variances are attributable to the new layout. If so, what would be theprojected annual savings?

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Standard Quantity 0.5 lb. 0.15 hr. Standard Price (rate in S) S 1.50 10.00 Standard Cost Direct materials Direct labor $0.75 1.50