Kenya Company’s standard cost accounting system recorded this information from its June operations. Required 1. Prepare journal entries dated June 30 to record the company’s costs and variances for the month. (Do not prepare the journal entry to close the variances.) Analysis Component 2. Identify the variances that would attract the attention of a manager who uses management by exception. Describe what action(s) the manager should consider. Standard direct materials cost $130,000 Direct materials quantity variance (favorable) . 5,000 Direct materials price variance (favorable) 1,500 Actual direct labor cost 65,000 Direct labor efficiency variance (favorable) . 3,000 Direct labor rate variance (unfavorable) 500 Actual overhead cost . 250,000 Volume variance (unfavorable) . 12,000 Controllable variance (unfavorable) . 8,000
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.
Kenya Company’s
Required
1. Prepare journal entries dated June 30 to record the company’s costs and variances for the month. (Do
not prepare the
Analysis Component
2. Identify the variances that would attract the attention of a manager who uses management by exception.
Describe what action(s) the manager should consider.
Standard direct materials cost $130,000
Direct materials quantity variance (favorable) . 5,000
Direct materials price variance (favorable) 1,500
Actual direct labor cost 65,000
Direct labor efficiency variance (favorable) . 3,000
Direct labor rate variance (unfavorable) 500
Actual
Volume variance (unfavorable) . 12,000
Controllable variance (unfavorable) . 8,000
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