dppy Inc. manufactures a fuel additive, Surge, which has a stable selling price of $44 per drum. The company has been producing and selling 80,000 drums per month. n connection with your examination of Zippy's financial statements for the year ended September 30, management has asked you to review some computations made by Zippy's cost ccountant. Your working papers disclose the following about the company's operations: Standard costs per drum of product manufactured: Materials: 8 gallons of chemicals e $2. $16 1 empty drum..... $17 Direct labor-1 hour. $10 Factory Overhead.. $ 6
dppy Inc. manufactures a fuel additive, Surge, which has a stable selling price of $44 per drum. The company has been producing and selling 80,000 drums per month. n connection with your examination of Zippy's financial statements for the year ended September 30, management has asked you to review some computations made by Zippy's cost ccountant. Your working papers disclose the following about the company's operations: Standard costs per drum of product manufactured: Materials: 8 gallons of chemicals e $2. $16 1 empty drum..... $17 Direct labor-1 hour. $10 Factory Overhead.. $ 6
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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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
Transcribed Image Text:Standard
Actual
Quantity
or Hours
Quantity
or Hours
Standard
Difference
Rate/Price
Variance
1.
Materials quantity variance:
Surge
Empty drums
gal.
gal.
Igal.
drums
drums
Idrum
3.
Labor efficiency variance
hrs.
hrs.
/hr.
Actual
Quantity
or Hours
Standard
Actual
Rate/Price
Rate/Price
Difference
Variance
2.
Materials purchase price variance:
Surge
Empty drums
Igal.
/drum
Igal.
gal.
Idrum
drums
4.
Labor rate variance
/hr.
/hr.
hours

Transcribed Image Text:Zippy Inc. manufactures a fuel additive, Surge, which 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 Zippy's financial statements for the year ended September 30, management has asked you to review some computations made by Zippy'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.
$17
Direct labor-1 hour.
$10
Factory Overhead.
$ 6
Costs and expenses during September:
Chemicals: 645,000 gallons purchased at a cost of $1,140,000; 600,000 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 $816,480. Factory overhead: $768,000.
REQUIRED:
Calculate the following for September, using the formulas in Determination of Variances on pages 421–422 and 424 (Round unit costs to the nearest whole cent and compute the materials
variances for both Surge and for the drums.):
1. Materials quantity variance.
2. Materials purchase price variance.
3. Labor efficiency variance.
4. Labor rate variance.
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