The Jone Restaurant Group manufactures the bags of frozen French fries used at its franchised restaurants. Lastâ week, Jone's purchased and used 96,000 pounds of potatoes at a price of $ 0.70 per pound. During theâ week, 1,600 direct labor hours were incurred in the plant at a rate of $ 12.25 per hour. The standard price per pound of potatoes is $ 0.90â, and the standard direct labor rate is $ 11.95 per hour. Standards indicate that for the number of bags of frozen friesâ produced, the factory should have used 93,000 pounds of potatoes and 1,500 hours of direct labor.

Required:

1. Determine the direct material price and quantity variances. Be sure to label each variance as favorable or unfavorable. 2. Determine the direct labor rate and efficiency variances. Be sure to label each variance as favorable or unfavorable. 3. Could the explanation for the labor variances be tied to the material? variances? Explain.

The Jone Restaurant Group: Variance Analysis

Direct Material Price and Quantity Variances: Variance is favourable when actual price is less than standard price.

1a) Direct Material Price Variance = Standard Price (SP) minus Actual Price (AP) multiplied by actual quantity (AQ).

= $0.90 - $0.70 x 96,000 = $19,200 Favorable

1b) Direct Material Quantity Variance = Standard Quantity (SQ) minus Actual Quantity (AQ) multiplied by Standard Price.

= 93,000 - 96,000 x $0.90 = $2,700 Unfavorable

This is unfavorable because actual quantity is more than standard quantity at standard price.

2a) Direct Labor Rate Variance = Standard Rate minus Actual Rate multiplied by Actual Hours.

= $11.95 - $12.25 x 1,600 = $480 Unfavorable

This is unfavorable because actual rate is higher than standard rate at actual hours.

2b) Direct Labor Efficiency Variance = Standard Hours minus Actual Hours multiplied by Standard Rate.

= 1,500 - 1,600 x $11.95 = $1,195 Unfavorable

This is unfavorable because actual hours are higher than standard hours at standard rate.

3) Labor variances tied to material variances?

Labor variances are like material variances and labor variances can be tied to material variances in two aspects.

The quantity of materials actually used were greater than standard, this necessitated more labour hours to be worked on the materials, giving way to labour price variance, which is measured at actual hours spent.

Similarly, one could infer that because the actual materials bought were inferior, no wonder the reduced material price, more labor was needed to convert the materials. This caused labor inefficiency resulting to the efficiency variance.

Explanation:

In performance evaluation and control, management uses standard costs to get useful information. The established standards are meant to monitor and guide actual performance.

When standards are greater than actuals, the variances resulting are favorable and vice versa.

Direct Material Price Variance is a variance that shows the difference between the standard price and the actual price of materials at the actual quantity.

Direct Material Quantity Variance is a variance that reveals the difference between the standard quantity and the actual quantity of materials bought at the standard price.

Direct Labor Rate Variance is the variance that reveals the difference between the standard labor rate and the actual labor rate at actual hours.

Direct Labor Efficiency Variance that compares the standard labor hours that should have been used with the actual labor hours used.