New Jersey Valve Company manufactured 7,400 units during January of a control valve used by milk processors in its Camden plant. Records indicated the following: Direct labor Direct material purchased Direct material used 45,300 hour at $15.40 per hour 32,000 pounds at $2.80 per pound 29,300 pounds The control valve has the following standard prime costs: Direct material Direct labor Standard prime cost per unit 4 pounds at $2.70 per pound 6 hour at $15.80 per hour $ 10.80 94.80 $105.60 Required: 1. Prepare a schedule of standard production costs for January, based on actual production of 7,400 units. 2. For the month of January, compute the following variances.
New Jersey Valve Company manufactured 7,400 units during January of a control valve used by milk processors in its Camden plant. Records indicated the following: Direct labor Direct material purchased Direct material used 45,300 hour at $15.40 per hour 32,000 pounds at $2.80 per pound 29,300 pounds The control valve has the following standard prime costs: Direct material Direct labor Standard prime cost per unit 4 pounds at $2.70 per pound 6 hour at $15.80 per hour $ 10.80 94.80 $105.60 Required: 1. Prepare a schedule of standard production costs for January, based on actual production of 7,400 units. 2. For the month of January, compute the following variances.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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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For the month of January, compute the following variances.
Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect
Transcribed Image Text:The image presents a table listing different types of variances used in cost accounting to assess budgetary performance. The table is structured with two columns, and the rows are labeled as follows:
1. **Direct-material price variance**
- This variance measures the difference between the actual cost of materials and the expected cost based on preset standards.
2. **Direct-material quantity variance**
- This variance examines the difference in the amount of materials used versus the standard amount that was expected to be used.
3. **Direct-material purchase price variance**
- This captures the difference between the actual price paid for materials and the expected price, focusing on the purchase transaction alone.
4. **Direct-labor rate variance**
- This reflects the difference between the actual hourly wage rate paid and the standard wage rate that was planned.
5. **Direct-labor efficiency variance**
- This variance calculates the difference between the actual labor hours worked and the standard labor hours that were budgeted for the production.
Each of these variances helps in identifying areas where financial performance diverged from expectations, enabling managers to make informed decisions to improve efficiency and cost-effectiveness. The table does not contain specific values, highlighting the framework of analysis used in variance accounting.
Transcribed Image Text:**New Jersey Valve Company Production Summary**
During January, the New Jersey Valve Company produced 7,400 units of a control valve at its Camden plant. This valve is used by milk processors. The production records indicate the following:
- **Direct Labor:** 45,300 hours at a rate of $15.40 per hour
- **Direct Material Purchased:** 32,000 pounds at $2.80 per pound
- **Direct Material Used:** 29,300 pounds
**Standard Prime Costs for the Control Valve:**
- **Direct Material:** 4 pounds at $2.70 per pound, totaling **$10.80**
- **Direct Labor:** 6 hours at $15.80 per hour, totaling **$94.80**
The **Standard Prime Cost per Unit** is **$105.60**.
**Required Tasks:**
1. **Prepare a schedule** of standard production costs for January based on the actual production of 7,400 units.
2. **Compute the following variances** for the month of January.
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