Calculation of materials and labor variances Fritz Corp. manufactures and sells a single product. The company uses a standard cost system. The standard cost per unit of product follows: The charges to the manufacturing department for November, when 5,000 units were produced, follow: The Purchasing department normally buys about the same quantity as is used in production during a month. In November, 5,500 lb were purchased at a price of $2.90 per pound. Required: Calculate the following from standard costs for the data given, using the formulas on pages 421–422 and 424: 1. Materials quantity variance. 2. Materials purchase price variance (at time of purchase). 3. Labor efficiency variance. 4. Labor rate variance.
Calculation of materials and labor variances Fritz Corp. manufactures and sells a single product. The company uses a standard cost system. The standard cost per unit of product follows: The charges to the manufacturing department for November, when 5,000 units were produced, follow: The Purchasing department normally buys about the same quantity as is used in production during a month. In November, 5,500 lb were purchased at a price of $2.90 per pound. Required: Calculate the following from standard costs for the data given, using the formulas on pages 421–422 and 424: 1. Materials quantity variance. 2. Materials purchase price variance (at time of purchase). 3. Labor efficiency variance. 4. Labor rate variance.
Chapter1: Financial Statements And Business Decisions
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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.
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Calculation of materials and labor variances
Fritz Corp. manufactures and sells a single product. The company uses a standard cost system. The standard cost per unit of product follows:
The charges to the manufacturing department for November, when 5,000 units were produced, follow:
The Purchasing department normally buys about the same quantity as is used in production during a month. In November, 5,500 lb were purchased at a price of $2.90 per pound.
Required:
Calculate the following from standard costs for the data given, using the formulas on pages 421–422 and 424:
1. Materials quantity variance.
2. Materials purchase price variance (at time of purchase).
3. Labor efficiency variance.
4. Labor rate variance.
Transcribed Image Text:**Calculation of Materials and Labor Variances**
Fritz Corp. manufactures and sells a single product. The company uses a standard cost system. The standard cost per unit of product is as follows:
- **Materials**—1 lb plastic @ $3.00 .............................................. $3.00
- **Direct labor**—1.6 hr @ $10.00 ................................................... 16.00
- **Factory overhead** ........................................................................ 4.45
- **Total** .......................................................................................... $23.45
The charges to the manufacturing department for November, when 5,000 units were produced, include:
- **Materials**—5,300 lb @ $3.00 ........................................ $15,900
- **Direct labor**—8,200 hr @ $9.80 ................................... 80,360
- **Factory overhead** ............................................................ 23,815
- **Total** ................................................................................ $120,075
The Purchasing department normally buys about the same quantity as is used in production during a month. In November, 5,500 lb were purchased at a price of $2.90 per pound.
**Required:**
Calculate the following from standard costs for the data given, using the formulas on pages 421–422 and 424:
1. **Materials quantity variance.**
2. **Materials purchase price variance (at time of purchase).**
3. **Labor efficiency variance.**
4. **Labor rate variance.**
5. **Give some reasons as to why both the materials quantity variance and labor efficiency variance might be unfavorable.**
Transcribed Image Text:**Problem 8-4**
This table outlines the process to calculate variances in a manufacturing or production context. There are two main parts of the table corresponding to different types of variances: materials and labor.
### 1. Materials Quantity Variance
- **Standard Quantity or Hours:** _______ lbs.
- **Actual Quantity or Hours:** _______ lbs.
- **Difference:** _______
- **Standard Price/Rate:** _______ /lb.
- **Variance:** _______
### 2. Materials Purchase Price Variance
- **Standard Price/Rate:** _______ /lb.
- **Actual Price/Rate:** _______ /lb.
- **Difference:** _______
- **Actual Quantity or Hours:** _______
- **Variance:** _______
### 3. Labor Efficiency Variance
- **Standard Quantity or Hours:** _______ hrs.
- **Actual Quantity or Hours:** _______ hrs.
- **Difference:** _______
- **Standard Price/Rate:** _______ /hr.
- **Variance:** _______
### 4. Labor Rate Variance
- **Standard Price/Rate:** _______ /hr.
- **Actual Price/Rate:** _______ /hr.
- **Difference:** _______
- **Actual Quantity or Hours:** _______
- **Variance:** _______
Each variance section requires filling in the standard and actual metrics to calculate the difference and subsequently the variance. The aim is to analyze the efficiency and cost-effectiveness of materials used and labor employed in the production process.
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