Inc. produced 1,000 units of the company's product in 2024. The standard quantity of direct materials was three yards of cloth per unit at a standard cost of $1.05 per yard. The accounting records showed that 2,600 yards of cloth were used and the company paid $1.10 per yard. Standard time was two direct labor hours per unit at a standard rate of $14.50 per direct labor hour. Employees worked 1,900 hours and were paid $13.50 per hour. Read the requirements1. Requirement 1. What are the benefits of setting cost standards? Standard costing helps managers do the following: Prepare the master budget Set target levels of performance for flexible budgets Identify performance standards Set sales prices of products and services Decrease accounting costs Requirement 2. Calculate the direct materials cost variance and the direct materials efficiency variance as well as the direct labor cost and efficiency variances. Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance Direct materials cost variance = (1) (AC - SC) × AQ = $130 (2) U Direct labor cost variance = (3) (AC - SC) × AQ = (4) F Select the required formulas, compute the efficiency variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance Direct materials efficiency variance = (5) = (6) Direct labor efficiency variance = (7) = (8) 1: Requirements 1. What are the benefits of setting cost standards? 2. Calculate the direct materials cost variance and the direct materials efficiency variance as well as the direct labor cost and efficiency variances. (1) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (2) F U (3) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (4) F U (5) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (6) F U (7) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (8) F U
Inc. produced 1,000 units of the company's product in 2024. The standard quantity of direct materials was three yards of cloth per unit at a standard cost of $1.05 per yard. The accounting records showed that 2,600 yards of cloth were used and the company paid $1.10 per yard. Standard time was two direct labor hours per unit at a standard rate of $14.50 per direct labor hour. Employees worked 1,900 hours and were paid $13.50 per hour. Read the requirements1. Requirement 1. What are the benefits of setting cost standards? Standard costing helps managers do the following: Prepare the master budget Set target levels of performance for flexible budgets Identify performance standards Set sales prices of products and services Decrease accounting costs Requirement 2. Calculate the direct materials cost variance and the direct materials efficiency variance as well as the direct labor cost and efficiency variances. Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance Direct materials cost variance = (1) (AC - SC) × AQ = $130 (2) U Direct labor cost variance = (3) (AC - SC) × AQ = (4) F Select the required formulas, compute the efficiency variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance Direct materials efficiency variance = (5) = (6) Direct labor efficiency variance = (7) = (8) 1: Requirements 1. What are the benefits of setting cost standards? 2. Calculate the direct materials cost variance and the direct materials efficiency variance as well as the direct labor cost and efficiency variances. (1) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (2) F U (3) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (4) F U (5) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (6) F U (7) (AC - SC) × AQ (AC - SC) × SQ (AQ - SQ) × AC (AQ - SQ) × SC Actual FOH - Allocated FOH Actual FOH - Budgeted FOH Bugeted FOH - Allocated FOH (8) F U
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Topic Video
Question
,
Inc. produced
1,000
units of the company's product in
2024.
The standard quantity of direct materials was
three
yards of cloth per unit at a standard cost of
$1.05
per yard. The accounting records showed that
2,600
yards of cloth were used and the company paid
$1.10 per
yard. Standard time was
two
direct labor hours per unit at a standard rate of
$14.50
per direct labor hour. Employees worked
1,900
hours and were paid
$13.50
per hour.Read the
requirements1.
Requirement 1. What are the benefits of setting cost standards?
|
Prepare the
|
|
Set target levels of performance for flexible budgets
|
|
Identify performance standards
|
|
Set sales prices of products and services
|
|
Decrease accounting costs
|
Requirement 2. Calculate the direct materials cost variance and the direct materials efficiency variance as well as the direct labor cost and efficiency variances.
Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead ; SC = standard cost; SQ = standard quantity.)
|
|
|
Formula
|
|
Variance
|
|
|---|---|---|---|---|---|
|
Direct materials cost variance
|
=
|
(1) (AC - SC) × AQ
|
=
|
$130
|
(2) U
|
|
Direct labor cost variance
|
=
|
(3) (AC - SC) × AQ
|
=
|
|
(4) F
|
Select the required formulas, compute the efficiency variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)
|
|
|
Formula
|
|
Variance
|
|
|---|---|---|---|---|---|
|
Direct materials efficiency variance
|
=
|
(5)
|
=
|
|
(6)
|
|
Direct labor efficiency variance
|
=
|
(7)
|
=
|
|
(8)
|
1: Requirements
|
1.
|
What are the benefits of setting cost standards?
|
|
2.
|
Calculate the direct materials cost variance and the direct materials efficiency variance as well as the direct labor cost and efficiency variances.
|
(1)
(AC - SC) × AQ
(AC - SC) × SQ
(AQ - SQ) × AC
(AQ - SQ) × SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(2)
F
U
(3)
(AC - SC) × AQ
(AC - SC) × SQ
(AQ - SQ) × AC
(AQ - SQ) × SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(4)
F
U
(5)
(AC - SC) × AQ
(AC - SC) × SQ
(AQ - SQ) × AC
(AQ - SQ) × SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(6)
F
U
(7)
(AC - SC) × AQ
(AC - SC) × SQ
(AQ - SQ) × AC
(AQ - SQ) × SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(8)
F
U
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