lue Devil Inc. is an auto part maker, and produces a particular product: Model RX300. The standard costs and actual production results are listed as follows: Cost standards for one unit of product Model RX300: Cost Standards Total Direct material 3 pounds at $2.5 per pound $7.5 Direct labor 5 hours at $8 per hour $40 Variable overhead 2.5 hours at $12 per hour $30 Actual production results: Units produced 8,000 units Direct material purchased 23,500 pounds at $2.70 per pound Direct material used 23,500 pounds at $2.70 per pound Direct labor 42,000 hours at $7.8 per hour Variable overhead 20,500 hours at $11.5 per hour Required: a. Determine the direct material price and quantity variance, and identify whether the variances are Favorable or Unfavorable. b. Determine the direct labor rate and efficiency variance, and identify whether the variances are Favorable or Unfavorable. c. Determine the variable overhead spending and efficiency variance.
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.
Blue Devil Inc. is an auto part maker, and produces a particular product: Model RX300. The
Cost standards for one unit of product Model RX300:
| Cost Standards | Total | |
| Direct material | 3 pounds at $2.5 per pound | $7.5 |
| Direct labor | 5 hours at $8 per hour | $40 |
| Variable overhead | 2.5 hours at $12 per hour | $30 |
Actual production results:
| Units produced | 8,000 units |
| Direct material purchased | 23,500 pounds at $2.70 per pound |
| Direct material used | 23,500 pounds at $2.70 per pound |
| Direct labor | 42,000 hours at $7.8 per hour |
| Variable overhead | 20,500 hours at $11.5 per hour |
Required:
a. Determine the direct material price and quantity variance, and identify whether the variances are Favorable or Unfavorable.
b. Determine the direct labor rate and efficiency variance, and identify whether the variances are Favorable or Unfavorable.
c. Determine the variable overhead spending and efficiency variance.
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