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Accelerator, Inc. manufactures a fuel additive

Price: $3.50


P8-3 Materials and labor variances analyses
Accelerator, Inc. manufactures a fuel additive, Stomp, that 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 Accelerator’s financial statements for the year ended September 30, management has asked you to review some computations made by Accelerator’s cost accountant. Your working papers disclose the following about the company’s operations:

Standard costs per drum of product manufactured:
Materials:
8 gallons of chemicals@$2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16
1 empty drum @ $1/drum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 $17
Direct labor: 1 hour @ $8/hour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8
Factory Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6
Costs and expenses during September:
Stomp: 600,000 gallons purchased at a cost of $1,140,000; 645,000 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 $654,480.
Factory overhead: $768,000.

Required:
Calculate the following variances for September
1. Materials quantity variance.
2. Materials purchase price variance.
3. Labor efficiency variance.
4. Labor rate variance.

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