ASM Company makes a cologne called Allure. The standard cost for one bottle of Allure is as follows: Standard Manufacturing Cost Elements Quantity x Price = Cost Direct materials 6 oz. x P0.90 = P 5.40 Direct labor 0.5 hrs. x P12.00 = P 6.00 Manufacturing overhead 0.5 hrs. x P 4.80 = P 2.40 P13.80 During the month, the following transactions occurred in manufacturing 10,000 bottles of Allure: 1. 58,000 ounces of materials were purchased at P1.00 per ounce. 2. All the materials purchased were used to produce the 10,000 bottles of Allure. 3. 4,900 direct labor hours were worked at a total labor cost of P56,350. 4. Variable manufacturing overhead incurred was P15,000 and fixed overhead incurred was P10,400. The manufacturing overhead rate of P4.80 is based on a normal capacity of 5,200 direct labor hours. The total budget at this capacity is P10,400 fixed and P14,560 variable. Instructions: (a) Compute the total variance and the variances for direct materials and direct labor elements. (b) Compute the total variance for manufacturing overhead
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.
ASM Company makes a cologne called Allure. The
Standard
Direct materials 6 oz. x P0.90 = P 5.40
Direct labor 0.5 hrs. x P12.00 = P 6.00
Manufacturing
P13.80
During the month, the following transactions occurred in manufacturing 10,000 bottles of Allure:
1. 58,000 ounces of materials were purchased at P1.00 per ounce.
2. All the materials purchased were used to produce the 10,000 bottles of Allure.
3. 4,900 direct labor hours were worked at a total labor cost of P56,350.
4. Variable manufacturing overhead incurred was P15,000 and fixed overhead incurred was P10,400. The manufacturing overhead rate of P4.80 is based on a normal capacity of 5,200 direct labor hours. The total budget at this capacity is P10,400 fixed and P14,560 variable.
Instructions:
(a) Compute the total variance and the variances for direct materials and direct labor elements.
(b) Compute the total variance for manufacturing overhead.
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