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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.
Step by step
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- Question No. 1-2 The estimated costs of producing 6,000 units of a component are: Per Unit Direct Material $10 Direct Labor 8 Applied Variable Factory Overhead 9 Applied Fixed Factory Overhead $1.5 per direct labor dollar The same component can be purchased from market at a price of $29 per unit. If the component is purchased from market, 25% of the fixed factory overhead will be saved. 12 Required: a. Should the component be purchased from the market? b. Being a production manager, provide your iogicai opinion on choosing between purchasing the component from market or producing in-houseQuestion No.1 X-Company produces a single product. Variable manufacturing overhead is applied to production on the basis of direct labour hours. The standard costs per unit are as follows; Direct Material: 6 ounces@$0.50 per ounce $03 Direct Labour: 2 hours@$9 per hour $18 Variable Manufacturing Overhead: 2 hours@$4.5per hour $09 Total Standard Variable cost per unit $30 During June, 2000 units were produced. The costs attached with the production were as follows: Material purchased: 18,000 ounces@$0.6 per ounce $10,800 Material used in production: 14000 ounces ----- Direct Labour: 4400hours @$8.75 per hour $38,500 Variable Manufacturing Overhead costs incurred $20,680 Required: Compute the Direct Material Price & quantity variance, Direct Labour Rate & Efficiency variance and Variable manufacturing overhead spending & efficiency variance.1 of 12 Assignment: 1 Case: 1 The Cost Sheet of a product is given as under: Direct Materials Direct Wages Factory Overheads: Fixed Variable Administrative Expenses: Selling and Distribution Overheads: Fixed Variable Total OMR 6.00 3.00 0.50 0.50 0.75 0.25 0.50 11.50 The selling price per unit is OMR 13. The above figures are for an output of 85,000 units, the capacity of the firm is 100,000 units. A foreign customer is desirous of buying 15,000 units at a price of OMR 10.50 per unit. (A) Advise the manufacturer, whether the order should be accepted. (B) What will be your advice, if the orders were from a local merchant, at the same price? (C) What would be the profits, if the local selling price falls to OMR 11 from OMR 13, after acceptance of the order from a local merchant?
- Problem 1 The Denmark Company estimates its factory overhead for the next period at P 425,000. It is estimated that 500.000 units will be produced at a materials cost of P 1,000,000 and will require 250.000 direct labor hours at an estimated cost of P1,062,500. The machines will run about l100,000 hours. Required: The predetermined factorv overhead rate based on: 1. Material cost 2. Units of production 3. Machine hours 4. Direct labor cost 5. Direct labor hours Cs Scanned with CamScannerQUESTION 14 A company is renting a warehouse. The rental is a fixed overhead cost. The company applies fixed overhead costs on the basis of direct labor hours. The predetermined overhead rate is $12 per direct labor hour. The following information is given: Planned production units of product 1,000 units Standard direct labor hours per unit of product 5 hours Budgeted rental cost $61,000 Actual production units of product 1,100 units Actual rental cost incurred $64,000 The fixed overhead volume (production volume) variance is: A. $1,000, Unfavorable B. $4,000, Unfavorable C. $3,000, Unfavorable D. $2,000, Favorable E. $5,000, FavorableQuestion 4 Achimota Ltd produces a single product and has the following financial information: Selling Price Cost per unit: Direct Materials Direct Labour Variable Overheads GH¢ 50 15 14 4 Fixed manufacturing overheads are GH¢40,000 per month, production volume is 10,000 units per month and sales is 9,200 units. You are required to: a) Calculate the cost per unit under: i. Absorption costing ii. Marginal costing b) Prepare the income statement of ABC Ltd under: i. Absorption costing technique ii. Marginal costing technique c) Reconcile the profits obtained under (bi) and (bii) d) Explain the reasons for the difference in profits in (c) above.
- Problem 3 Yukidaruma Company uses a standard cost system for its single product. The following data are available: Actual experience for the current year: Raw materials purchased and used (23,500 pieces at $5.20 each) Direct labor costs (5,600 hours at $11.00 per hour) Actual variable overhead cost Actual units produced. Standards per unit of product: Raw materials. Direct labor.. Variable overhead 2 pieces at $5.00 each 0.5 hours at $10.00 per hour $3.00 per direct laber, hour $122,200 $61,600 $17,500 11,500 units Required: Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of usage: a. Direct materials price variance and Direct materials quantity variance. b. Direct labor rate variance and Direct labor efficiency variance. c. Variable overhead rate variance and Variable overhead efficiency variance.Question 2 Cahaya Company produces product X with the following cost structure: Standard cost per unit: Direct materials RM6 Direct labor (5 hours at RM2 per hour) RM10 Production overheads RM8 A total of 8,000 units of product X were actually produced. The budgeted production was estimated to be 7,000 units Calculate the standard cost of production for Product X and the standard hours produced.Question Two Apex Ltd manufactures three products X, Y and Z in two product ion departments; P1 and Pz. The company also has two service departments: Sı and Sz. The company's budgeted product ion data and manufacturing costs for the year 2021 were as f ollows: Product Product ion (units) Direct materials (Shs. per unit) Direct labour: P: (Shs. per unit) 4,200 6,900 1,700 11 14 17 6 4 2 P2 (shs. Per unit) 12 3 21 Machine hours per unit 6 3 4 Additional information 1. Absorpt ion rates in depart ments Pı and Pz are based on machine hours and labour wages respectively. 2. Budgeted overheads for rent, heating and lighting amounted to shs.17,000 while depreciation and ins urance amount ed to shs.25,000, 3. The costs of service department Szare apportioned to production departments Pi and P2 at the ratio of 7:3 while the costs of Si are apportioned to depart ments Pi Pz and Sz based on the number of employees. 4. Other information includes: P1 Pz S. Sz 27,660 19,47o 16,600 26,650 Budgeted…
- PROBLEM #1 Xavier Company produces a single product. Variable manufacturing overhead is applied to products on the basis of direct labor-hours. The standard costs for one unit of product are as follows: Direct material: 6 ounces at $0.50 per ounce.... Direct labor: 1.8 hours at $10 per hour... 18 Variable manufacturing overhead: 1.8 hours at $5 per hour....... 9 Total standard variable cost per unit .... $30 $3 During June, 2,000 units were produced. The costs associated with June's operations were as follows: Material purchased: 18,000 ounces at $0.60 per ounce.. Material used in production: 14,000 ounces. Direct labor: 4,000 hours at $9.75 per hour ….. Variable manufacturing overhead costs incurred . ..$10,800 $39,000 $20,800 Required: Compute the direct materials, direct labor, and variable manufacturing overhead variances.The following variable production costs apply to goods made by Walton Manufacturing Corporation: Cost per unit $10.00 Item Materials Labor 8.50 Variable overhead 1.20 Total $19.70 Required Determine the total variable production cost, assuming that Walton makes 9,000, 19,000, or 29,000 units. Units Produced 9,000 19,000 29,000 Total variable costQuestion 6: Your company currently produces a range of three products, D, E, and F to which the following details relate for Period 2. D E F Production (units) 1,500 2,500 14,000 Material cost per unit Br. 18 Br. 10 Br. 20 Labor hours per unit 1 3 2 Machine hours per unit 3 2 6 Labor costs are Br. 8 per hour and production overheads are currently absorbed in the conventional system by reference to machine hours. Total production overheads for Period 2 have been analyzed as follows: Set-up cost 327,250 Handling cost 187,000 Machine cost 140,250 Inspection cost 280,500 935,000 Calculate the cost per unit for each product using conventional The introduction of an ABC is being considered and to that end the following volume…