(3 yards @ $0.80 per yard) 2.40 Cardboard #3 (0.4 yards @ $0.25 per yard) 0.10 Direct labor (0.25 hours @ $12 per hour) 3.00 Factory overhead (0.25 hours @ $22 per hour. Factory overhead is 2/5 variable and 3/5 fixed.) 5.50 Total standard cost per unit of output $11.25 Standards are based on normal monthly production of 82,000 units. During the month of October the following occurred: Cardboard #1 purchased (41,500 yards @ $0.52 per yard) $ 21,580 Cardboard #2 purchased (261,200 yards @ $0.87 per yard) 227,244 Cardboard #3 purchased (32,800 yards @ $0.29 per yard) 9,512 Cardboard #1 used (40,300 yards)
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Barry’s Boxes manufactures a product with the following standard costs:
Cardboard #1 (0.5 yards @ $0.50 per yard) $ 0.25
Cardboard #2 (3 yards @ $0.80 per yard) 2.40
Cardboard #3 (0.4 yards @ $0.25 per yard) 0.10
Direct labor (0.25 hours @ $12 per hour) 3.00
Factory
Factory overhead is 2/5 variable
and 3/5 fixed.) 5.50
Total
Standards are based on normal monthly production of 82,000 units. During the month of
October the following occurred:
Cardboard #1 purchased (41,500 yards @ $0.52 per yard) $ 21,580
Cardboard #2 purchased (261,200 yards @ $0.87 per yard) 227,244
Cardboard #3 purchased (32,800 yards @ $0.29 per yard) 9,512
Cardboard #1 used (40,300 yards)
Cardboard #2 used (276,900 yards)
Cardboard #3 used (34,400 yards)
Direct labor (22,120 hours @ $11.50 per hour) 254,380
Actual variable factory overhead 196,000
Actual fixed factory overhead 295,000
Units produced during October 84,875
Required:
Prepare a variance report including calculations for all material, labor, and overhead
variances and appropriate JEs. Your report should include an analysis of and
recommendations on the variances incurred during October.
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