Ehrlich Inc. makes a product with the following standard costs for direct material and direct labor: Quantity/Hours Per Unit Price /Rate Direct Material 6.00 $ 2.80 Direct Labor 1.50 $ 16.00 During the most recent month, 6,500 units were produced. The costs associated with the month’s production of this product were as follows: Quantity/Hours Price /Rate Materials purchased 41,000 lbs $3.00/per lbs. Materials used in production 32,000 lbs Direct labor 9,950 hrs $14.50/per hr. Required: Part 1 - Calculate the standard cost expected to make 6,500 units of product.(Materials and labor) Part 2 - Compute applicable Variances… Material Price Variance Material Quantity Variance Labor Rate Variance Labor Efficiency Variance Labor Spending Variance
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.
2) Ehrlich Inc. makes a product with the following standard costs for direct material and direct labor:
|
|
Quantity/Hours Per Unit |
Price /Rate |
|
Direct Material |
6.00 |
$ 2.80 |
|
Direct Labor |
1.50 |
$ 16.00 |
During the most recent month, 6,500 units were produced. The costs associated with the month’s production of this product were as follows:
|
|
Quantity/Hours |
Price /Rate |
|
Materials purchased |
41,000 lbs |
$3.00/per lbs. |
|
Materials used in production |
32,000 lbs |
|
|
Direct labor |
9,950 hrs |
$14.50/per hr. |
Required:
Part 1 - Calculate the
Part 2 - Compute applicable Variances…
- Material Price Variance
- Material Quantity Variance
- Labor Rate Variance
- Labor Efficiency Variance
- Labor Spending Variance
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