Magnetic Company has made the following information available for its production facility for the current month. Fixed overhead was estimated at 19,000 machine hours for the production cycle. Actual machine hours for the period were 18,900, which generated 3,900 units. Material purchased (80,000 pieces) P314,000 Material quantity variance P6,400 U Machine hours used (18,900 hours) VOH spending variance P50 U Actual fixed overhead P60,000 Actual labor cost P40,120 Actual labor hours 5,900 Magnetic Company’s standard costs are as follows: Direct material 20 pieces @ P4 per piece Direct labor 1.5 hours @ P6 per hour Variable overhead (applied on a machine hour basis) 4.8 hours @ P2.50 per hour Fixed overhead (applied on a machine hour basis) 4.8 hours @ P3 per hour Determine the following items: a. labor rate variance b. standard hours allowed for labor c. total standard cost of labor allowed d. labor 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.
Magnetic Company has made the following information available for its production facility for the current month. Fixed
|
Material purchased (80,000 pieces) |
P314,000 |
|
|
Material quantity variance |
P6,400 |
U |
|
Machine hours used (18,900 hours) |
|
|
|
VOH spending variance |
P50 |
U |
|
Actual fixed overhead |
P60,000 |
|
|
Actual labor cost |
P40,120 |
|
|
Actual labor hours |
5,900 |
|
Magnetic Company’s
|
Direct material |
20 pieces @ P4 per piece |
|
Direct labor |
1.5 hours @ P6 per hour |
|
Variable overhead |
|
|
(applied on a machine hour basis) |
4.8 hours @ P2.50 per hour |
|
Fixed overhead |
|
|
(applied on a machine hour basis) |
4.8 hours @ P3 per hour |
Determine the following items:
|
a. |
labor rate variance |
|
b. |
standard hours allowed for labor |
|
c. |
total standard cost of labor allowed |
|
d. |
labor efficiency variance |
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