Rose Ltd is a manufacturing company that uses standard costing and variance analysis to control its costs. It sets the following standards for each unit of its product produced. Direct Materials 2 kg at $2 per kg Direct Labour 1.5 hours at $14 per hour During the period, 4,000 units were actually produced, incurring the following costs: Direct Material 7,600kg at a total cost of $14,440 Direct Labour 8,000 hours at a total cost of $111,200 a. Calculate the following variances: i. Direct Materials Price Variance ii. Direct Materials Usage Variance iii. Direct Labour Efficiency Variance iv. Direct Labour Rate Variance
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.
Rose Ltd is a manufacturing company that uses
analysis
product produced.
Direct Materials 2 kg at $2 per kg
Direct Labour 1.5 hours at $14 per hour
During the period, 4,000 units were actually produced, incurring the following
costs:
Direct Material 7,600kg at a total cost of $14,440
Direct Labour 8,000 hours at a total cost of $111,200
a. Calculate the following variances:
i. Direct Materials Price Variance
ii. Direct Materials Usage Variance
iii. Direct Labour Efficiency Variance
iv. Direct Labour Rate Variance
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