Chapter 8, Problem 3P

Zippy Inc. manufactures a fuel additive, Surge, which has a stable selling price of $44 per drum. The company has been producing and selling 80,000 drums per month.

In connection with your examination of Zippy’s financial statements for the year ended September 30, management has asked you to review some computations made by Zippy’s cost accountant. Your working papers disclose the following about the company’s operations: Standard costs per drum of product manufactured:

Materials:

Costs and expenses during September:

Chemicals: 645,000 gallons purchased at a cost of $1,140,000; 600,000 gallons used.

Empty drums: 94,000 purchased at a cost of $94,000; 80,000 drums used.

Direct labor: 81,000 hours worked at a cost of $816,480. Factory overhead: $768,000.

Required:

Calculate the following for September, using the formulas on pages 421–422 and 424 (Round unit costs to the nearest whole cent and compute the materials variances for both Surge and for the drums.):

1. 1. Materials quantity variance.
2. 2. Materials purchase price variance.
3. 3. Labor efficiency variance.
4. 4. Labor rate variance.