Required: a. Compute the direct material price and efficiency variances. b. Compute the direct labor price and efficiency varlances. c. Compute the variable overhead price and efficiency variances. For all resulrements enter your onewers in whole dollers Indicate the effect of each verlencs
Required: a. Compute the direct material price and efficiency variances. b. Compute the direct labor price and efficiency varlances. c. Compute the variable overhead price and efficiency variances. For all resulrements enter your onewers in whole dollers Indicate the effect of each verlencs
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:Required:
a. Compute the direct material price and efficiency variances.
b. Compute the direct labor price and efficiency varlances.
c. Compute the variable overhead price and efficiency variances.
(For all requirements, enter your answers in whole dollars. Indicate the effect of each varlance by selecting "F" for favorable, or
"U" for unfavorable. If there is no effect, do not select either option.)
a.
lb.
C.
Direct materials:
Price
variance
Efficiency variance
Direct labor:
Price variance
Efficiency variance
Variable overhead:
Price variance
Efficiency variance
Transcribed Image Text:Paynesville Corporation manufactures and sells a preservative used in food and drug manufacturing. The company carries no
Inventories. The master budget calls for the company to manufacture and sell 106,000 liters at a budgeted price of $120 per liter this
year. The standard direct cost sheet for one liter of the preservative follows.
Direct materials
Direct labor
Variable overhead is applied based on direct labor hours. The variable overhead rate is $50 per direct-labor hour. The fixed overhead
rate (at the master budget level of activity) is $25 per unit. All non-manufacturing costs are fixed and are budgeted at $1.5 million for
the coming year.
At the end of the year, the costs analyst reported that the sales activity variance for the year was $396,000 unfavorable.
The following is the actual income statement (in thousands of dollars) for the year.
Sales revenue
Less variable costs
Direct materials
Direct labor
Variable overhead
Total variable costs
(2 pounds @ $7) $14
(0.5 hours @ $30) 15
Contribution margin
Less fixed costs
Fixed manufacturing overhead
Non-manufacturing costs
Total fixed costs
Operating profit
$12,218
1,318
1,460
2,430
$ 5,208
$ 7,010
1,080
1,260
$ 2,340
$ 4,670
During the year, the company purchased 182,000 pounds of material and employed 43,400 hours of direct labor.
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