Question 1: O'Brien Vineyards has the following direct labor standard to bottle, cork and label one bottle of Pinot Noir;
0.33 standard hours per bottle at $11.25 per direct labor hour
Last week, 777 direct labor hours were worked at a total labor cost of $8,787 to bottle, cork and label 2,125 bottles.
•What are O'Brien Vineyards labor efficiency variance and the labor rate variance?
•Is the variances favorable or unfavorable?
•What are 2 possible reasons for the variances?
Question 2: O'Brien Vineyards reports the following;
Net Operating Income: 205,000
Average Operating Assets: 1,985,000
Sales: 2,575,000
Operating Expenses: 2,320,000
Minimum Required Rate of Return is 12.25%
O'Brien Vineyard's ROI is 10.3%
Residual Income is -38,162.50
•If O'Brien's Vineyard is compensated based on ROI, will he want to make an investment of $400,000 that would generate additional net operating income of $75,000 per year? Why or why not. Show calculations.
•If O'Brien's vineyard is compensated based on residual income, will he want to make an investment of $400,000 that would generate additional net operating income of $75,000 per year? Why or why not. Show calculations.
Question 3. O'Brien Vineyards has the following direct materials standard to manufacture one bottle of Pinot Noir:
2.4 pounds of grapes per bottle at $1.65 per pound
Last week, 5,415 pounds of grapes were purchased and used to make 2,125 bottles. The grapes cost a total of $9,043.05.
•What is O'Brien Vineyards materials quantity variance and the materials price variance?
•Is the variances favorable or unfavorable?
•What are 2 possible reasons for the variances?