Gail Cleaners produces a commercial cleaning compound known as Carpex. The direct materials and direct labour standards for unit of Carpex follow: Direct materials Direct labour Variable overhead Standard Quantity or Hours 4.10 kilograms 0.40 hour 0.40 hour Standard Price or Rate $ 2.20 per kilogram $10.00 per hour $ 1.30 per hour Materials price variance Materials quantity variance Standard Cost $9.02 4.00 0.52 The budgeted fixed overhead cost is $14,614 per month. The denominator activity level of the allocation base is 800 direct labour- hours. During the most recent month, the following activity was recorded: a. 9,900 kilograms of material were purchased at a cost of $2.22 per kilogram. b. A total of 850 hours of direct labour time was recorded at a total labour cost of $9,110. c. The variable overhead cost was $1,580, and the fixed overhead cost was $14,704. Assume that the company produced 1,600 units during the month, using 6,600 kilograms of material in the production process. (T rest of the material purchased remained in inventory.) Required: 1. Compute the direct materials price and quantity variances for the month. (Indicate the effect of each variance by selecting "F" favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Gail Cleaners produces a commercial cleaning compound known as Carpex. The direct materials and direct labour standards for unit of Carpex follow: Direct materials Direct labour Variable overhead Standard Quantity or Hours 4.10 kilograms 0.40 hour 0.40 hour Standard Price or Rate $ 2.20 per kilogram $10.00 per hour $ 1.30 per hour Materials price variance Materials quantity variance Standard Cost $9.02 4.00 0.52 The budgeted fixed overhead cost is $14,614 per month. The denominator activity level of the allocation base is 800 direct labour- hours. During the most recent month, the following activity was recorded: a. 9,900 kilograms of material were purchased at a cost of $2.22 per kilogram. b. A total of 850 hours of direct labour time was recorded at a total labour cost of $9,110. c. The variable overhead cost was $1,580, and the fixed overhead cost was $14,704. Assume that the company produced 1,600 units during the month, using 6,600 kilograms of material in the production process. (T rest of the material purchased remained in inventory.) Required: 1. Compute the direct materials price and quantity variances for the month. (Indicate the effect of each variance by selecting "F" favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
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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:Gail Cleaners produces a commercial cleaning compound known as Carpex. The direct materials and direct labour standards for one
unit of Carpex follow:
Direct materials
Direct labour
Variable overhead
Standard Quantity
or Hours
4.10 kilograms
0.40 hour
0.40 hour
Standard Price
or Rate
$ 2.20 per kilogram
$10.00 per hour
$ 1.30 per hour
Standard
Cost
$9.02
4.00
0.52
The budgeted fixed overhead cost is $14,614 per month. The denominator activity level of the allocation base is 800 direct labour-
hours.
Materials price variance
Materials quantity variance
During the most recent month, the following activity was recorded:
a. 9,900 kilograms of material were purchased at a cost of $2.22 per kilogram.
b. A total of 850 hours of direct labour time was recorded at a total labour cost of $9,110.
c. The variable overhead cost was $1,580, and the fixed overhead cost was $14,704.
Assume that the company produced 1,600 units during the month, using 6,600 kilograms of material in the production process. (The
rest of the material purchased remained in inventory.)
Required:
1. Compute the direct materials price and quantity variances for the month. (Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
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