Reference no: EM132615139

Question - Class Quest, Inc. uses a standard cost system for its product, Fruta. For the month of June, the company expects to produce 40,000 units of Fruta using 20,000 pounds of material, and 4,000 direct labor hours. The standard price of materials is $10.00 per pound while the labor standard rate is $15.00 per hour. Variable overhead is assigned to the product on the basis of direct labor hours at the rate of $5.00 per direct labor hour.

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

1. The company actually produced 45,000 units of Fruta during June.

2. Materials of X pounds were purchased at a cost of $243,000. There were 3,000 pounds in beginning inventory of materials; 24,000 pounds were used in production; and at the end of the month, 6,000 pounds of material remained in ending inventory.

3. The company used 4,750 hours of direct labor and paid a total of $57,000.

4. Actual variable manufacturing overhead costs during June totaled $28,500.

REQUIREMENT A: Complete the table below (You do NOT need to show your work)

Material Price Variance$ Material Quantity Variance$ Labor Rate Variance$ Labor Efficiency Variance$ Variable Overhead Rate Variance$ Variable Overhead Efficiency Variance $

REQUIREMENT B: Use the Material Variances from part A above to answer this question:

1. What other factors, other than materials quality, might have caused the quantity variance?

2. The direct materials were purchased from a new supplier, who is eager to enter into a long-term contract. Should the company sign this contract? Why or why not? What other factors might the company want to consider before signing the contract?