Lana Kane Inc. has determined the following cost standards for the production of her short sweater-dresses: Standard Standard Standard Quantity Price or rate Cost Fabric 4 yards $4.50 per yard $22.00 Direct labor 2 hours $12.00 per hour $24.00 Actual results for last month were as follows: Number of dresses produced 12,000 dresses Direct labor hours worked 24,175 hours Yards of fabric purchased 50,000 yards Yards of fabric used in production 49,500 yards Cost of fabric purchased $217,404 Direct labor cost $285,600 What is the materials price variance? Is it favorable or unfavorable? What is the materials quantity variance? Is it favorable or unfavorable? What is the labor rate variance? Is it favorable or unfavorable?
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.
- Lana Kane Inc. has determined the following cost standards for the production of her short sweater-dresses:
Standard Standard Standard
Quantity Price or rate Cost
Fabric 4 yards $4.50 per yard $22.00
Direct labor 2 hours $12.00 per hour $24.00
Actual results for last month were as follows:
Number of dresses produced 12,000 dresses
Direct labor hours worked 24,175 hours
Yards of fabric purchased 50,000 yards
Yards of fabric used in production 49,500 yards
Cost of fabric purchased $217,404
Direct labor cost $285,600
- What is the materials price variance? Is it favorable or unfavorable?
- What is the materials quantity variance? Is it favorable or unfavorable?
- What is the labor rate variance? Is it favorable or unfavorable?
- What is the labor efficiency variance? Is it favorable or unfavorable?
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