Molino Company produces ponchos. The company has established the following direct material and direct labor standards for one poncho. Wool ( 3 yds. @3.00) $ 9.00 labor ( 3.5 hrs. @ $5.00) $ 17.50 Total Prime cost $ 26.50 During the first quarter of the year. Molino produced 25,000 ponchos. The company purchased and used 78,200 yards of wool at $2.90 per yard. Actual direct labor used was 90,000 hours at $5.20 per hour. A) Calculate the direct material price and usage variances. B) Calculate the direct labor rate and efficiency variances.
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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3) Molino Company produces ponchos. The company has established the following |
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direct material and direct labor standards for one poncho. |
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Wool ( 3 yds. @3.00) |
$ 9.00 |
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labor ( 3.5 hrs. @ $5.00) |
$ 17.50 |
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Total Prime cost |
$ 26.50 |
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During the first quarter of the year. Molino produced 25,000 ponchos. The company purchased |
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and used 78,200 yards of wool at $2.90 per yard. Actual direct labor used was 90,000 hours at $5.20 |
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per hour. |
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A) Calculate the direct material price and usage variances. |
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B) Calculate the direct labor rate and efficiency variances. |
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