Price variance: Actual price Standard price Variance Actual quantity Direct materials price variance Quantity variance: Actual quantity Standard quantity Variance Standard price Direct Materials Cost Variance Direct materials quantity variance Total direct materials cost variance Rate variance: Actual rate per hour Standard rate per hour Direct Labor Cost Variance || ||
Price variance: Actual price Standard price Variance Actual quantity Direct materials price variance Quantity variance: Actual quantity Standard quantity Variance Standard price Direct Materials Cost Variance Direct materials quantity variance Total direct materials cost variance Rate variance: Actual rate per hour Standard rate per hour Direct Labor Cost Variance || ||
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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Transcribed Image Text:**Manufacturing Costs Analysis for Road Gripper Tire Co.**
Road Gripper Tire Co. manufactures automobile tires. Below are the standard and actual costs for the manufacture of 4,160 tires, covering direct materials, direct labor, and factory overhead:
| Cost Component | Standard Costs | Actual Costs |
|-------------------|-----------------------------------------|-------------------------------------------|
| **Direct Materials** | 100,000 lb. at $6.40 | 101,000 lb. at $6.50 |
| **Direct Labor** | 2,080 hrs. at $15.75 | 2,000 hrs. at $15.40 |
| **Factory Overhead** | Rates per direct labor hr., based on 100% of normal capacity of 2,000 direct labor hrs.: | |
| | Variable cost, $4.00 | $8,200 variable cost |
| | Fixed cost, $6.00 | $12,000 fixed cost |
Each tire requires 0.5 hour of direct labor.
**Explanation:**
- **Direct Materials**: Standard costs were based on 100,000 pounds at $6.40 per pound, while actual costs were higher, with 101,000 pounds used at $6.50 per pound.
- **Direct Labor**: The standard labor hours were 2,080 at a rate of $15.75 per hour, but the actual hours were 2,000 at a lower rate of $15.40 per hour.
- **Factory Overhead**:
- The standard overhead costs were calculated at $4.00 per hour for variable costs and $6.00 for fixed costs based on the normal capacity.
- The actual variable cost came to $8,200, while the actual fixed cost was $12,000.
This detailed cost analysis assists in comparing planned versus actual expenditures, aiding in budget management and cost control strategies.
Transcribed Image Text:**Direct Materials Cost Variance**
1. **Price Variance:**
- **Actual Price**
- **Standard Price**
- **Variance**
- Multiply **Actual Quantity** by the Variance to get the **Direct Materials Price Variance**.
2. **Quantity Variance:**
- **Actual Quantity**
- **Standard Quantity**
- **Variance**
- Multiply **Standard Price** by the Variance to get the **Direct Materials Quantity Variance**.
3. **Total Direct Materials Cost Variance:**
- The sum of the Direct Materials Price Variance and Direct Materials Quantity Variance.
---
**Direct Labor Cost Variance**
1. **Rate Variance:**
- **Actual Rate per Hour**
- **Standard Rate per Hour**
Note: The template is structured to fill in values and calculate variances for both direct materials and labor costs, aiding in cost management and analysis.
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