Simple Ltd uses variance analysis as a method of cost control. Information for the year ended 30 June 2000 is as follows; Budget Production for the year 1400 units Direct materials (Quantity 2800 at £4) £11,200 Direct Labour (700 hours at £9.5/hour) £6,650 Total £17,850 Actual Production for the year 1,200 units Labour hours for year 750 hours Labour cost for year £7,200 Materials used in year 2,700 Materials cost for year £10,260 Required: Calculate the standard costing variances for the materials and labour.
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.
Simple Ltd uses
Budget Production for the year 1400 units
Direct materials (Quantity 2800 at £4) £11,200
Direct Labour (700 hours at £9.5/hour) £6,650
Total £17,850
Actual Production for the year 1,200 units
Labour hours for year 750 hours
Labour cost for year £7,200
Materials used in year 2,700
Materials cost for year £10,260
Required:
Calculate the
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