Problem 17-46 (Static) Variable Cost Variances: Materials Purchased and Used Are Not Equal (LO 17-2, 7) Larned Company makes a storage box using metal. The company uses a standard costing system. Variable overhead is allocated on the basis of direct material usage (pounds) Overhead is allocated to units based on expected production of 13,500 units. Larned maintains a materials inventory, so the amount of material used is not necessarily the same as the amount of material purchased in any one month. The standard cost sheet for a single box follows: Direct material Direct labor Variable overhead Fixed overhead 0.5 pound $8 9.2 hours $30 0.5 pound 54 March financial results show that the average purchase price of metal was $8.20 per pound. The purchase price variance was $1,540 The variable overhead efficiency variance was $1.200 favorable Good output produced totaled 12,000 units. a Metals purchased Efficiency variance Metals used Required: a. How many pounds of metal were purchased in March? b. What was the direct materials efficiency variance in March? Note: Indicate the effect of this variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option. c. How many pounds of metal were used in March? $ 4.00 6.00 2.00 13.00 $15.00 pounds pounds
Problem 17-46 (Static) Variable Cost Variances: Materials Purchased and Used Are Not Equal (LO 17-2, 7) Larned Company makes a storage box using metal. The company uses a standard costing system. Variable overhead is allocated on the basis of direct material usage (pounds) Overhead is allocated to units based on expected production of 13,500 units. Larned maintains a materials inventory, so the amount of material used is not necessarily the same as the amount of material purchased in any one month. The standard cost sheet for a single box follows: Direct material Direct labor Variable overhead Fixed overhead 0.5 pound $8 9.2 hours $30 0.5 pound 54 March financial results show that the average purchase price of metal was $8.20 per pound. The purchase price variance was $1,540 The variable overhead efficiency variance was $1.200 favorable Good output produced totaled 12,000 units. a Metals purchased Efficiency variance Metals used Required: a. How many pounds of metal were purchased in March? b. What was the direct materials efficiency variance in March? Note: Indicate the effect of this variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option. c. How many pounds of metal were used in March? $ 4.00 6.00 2.00 13.00 $15.00 pounds pounds
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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Problem 17-46 (Static) Variable Cost Variances: Materials Purchased and Used Are Not Equal (LO 17-2,
7)
Larned Company makes a storage box using metal. The company uses a standard costing system. Variable overhead is allocated on
the basis of direct material usage (pounds) Overhead is allocated to units based on expected production of 13,500 units Larned
maintains a materials inventory, so the amount of material used is not necessarily the same as the amount of material purchased in any
one month.
The standard cost sheet for a single box follows:
0.5 pound $8
0.2 hours $30
0.5 pound @ $4
Direct material
Direct labor
Variable overhead
Fixed overhead
March financial results show that the average purchase price of metal was $8.20 per pound. The purchase price variance was $1,540.
The variable overhead efficiency variance was $1.200 favorable. Good output produced totaled 12,000 units.
Required:
a. How many pounds of metal were purchased in March?
b. What was the direct materials efficiency variance in March?
Note: Indicate the effect of this variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select
either option.
c. How many pounds of metal were used in March?
a Metals purchased
b. Efficiency variance
Metals used
$4.00
6.00
2.00
3.00
$15.00
pounds
pounds
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