During December, Wards Company’s actual costs incurred in the production of 2,000 units were as follows: Direct labor: $69,000 ($10 per hour) Direct material: $32,000 ($4 per pound) The standards for one unit of Wards Company’s product are as follows: Direct labor: Quantity, 1 hour per unit Rate, $9 per hour Direct material: Quantity, 1.5 pounds per unit Price, $3 per pound Required: 1. Compute the direct-material price and quantity variances. Indicate whether each variance is favorable or unfavorable. Show your calculations. 2. Compute the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable. Show your calculations.
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.
During December, Wards Company’s actual costs incurred in the production of 2,000 units were as follows:
Direct labor: $69,000 ($10 per hour)
Direct material: $32,000 ($4 per pound)
The standards for one unit of Wards Company’s product are as follows:
Direct labor:
Quantity, 1 hour per unit
Rate, $9 per hour
Direct material:
Quantity, 1.5 pounds per unit
Price, $3 per pound
Required:
1. Compute the direct-material price and quantity variances. Indicate whether each
variance is favorable or unfavorable. Show your calculations.
2. Compute the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable. Show your calculations.
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