hrs. @ $15.00) 30.00 Standard prime cost per unit $50.00 The actual results for the year are as follows: Units produced: 440,000. Materials purchased: 3,080,000 pounds @ $5.60. Materials used: 2,640,000 pounds. Direct labor: 968,000 hours @ $14.1
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.
At the beginning of the year, Craig Company had the following
| Direct materials (5 lbs. @ $4.00) | $20.00 |
| Direct labor (2 hrs. @ $15.00) | 30.00 |
| Standard prime cost per unit | $50.00 |
The actual results for the year are as follows:
- Units produced: 440,000.
- Materials purchased: 3,080,000 pounds @ $5.60.
- Materials used: 2,640,000 pounds.
- Direct labor: 968,000 hours @ $14.16.
Required:
1. Compute price and usage variances for materials. Enter amounts as positive numbers and select Favorable or Unfavorable.
| Material price variance | $fill in the blank 1 |
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| Material usage variance | $fill in the blank 3 |
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2. Compute the labor rate and labor efficiency variances. Enter amounts as positive numbers and select Favorable or Unfavorable.
| Labor rate variance | $fill in the blank 5 |
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| Labor efficiency variance | $fill in the blank 7 |
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The difference between actual and expected costs is referred to as variance. To evaluate performance, variance analysis compares the expected value to the actual value. The analysis provides both an explanation of the variance and an assessment of the potential causes of the variance. This comprehensive data is provided to the management to aid in future decision-making and to help them assess what may have gone right or wrong.
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