McDaniel Company manufactures 100-pound bags of fertilizer that have the following unit standard costs for direct materials and direct labor: Direct materials (100 lbs. @ $1.00 per lb.) $100.00 Direct labor (0.5 hours at $24 per hour) 12.00 Total standard prime cost per 100-lb. bag $112.00 The following activities were recorded for October: 1,000 bags were manufactured. 95,000 lbs. of materials costing $76,000
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.
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McDaniel Company manufactures 100-pound bags of fertilizer that have the following unit
standard costs for direct materials and direct labor:Direct materials (100 lbs. @ $1.00 per lb.) $100.00 Direct labor (0.5 hours at $24 per hour) 12.00 Total standard prime cost per 100-lb. bag $112.00 The following activities were recorded for October:
- 1,000 bags were manufactured.
- 95,000 lbs. of materials costing $76,000 were purchased.
- 102,500 lbs. of materials were used.
- $12,000 was paid for 475 hours of direct labor.
There were no beginning or ending work-in-process inventories.
Required:
A. Compute the direct materials variances.
Materials price variance $fill in the blank 1 Favorable Materials usage variance $fill in the blank 3 Unfavorable B. Compute the direct labor variances.
Labor rate variance $fill in the blank 5 Unfavorable Labor efficiency variance $fill in the blank 7 Favorable
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