STANDARD COSTING Miandad Sports Corporation uses standard cost system. The cost data for various elements of cost for the manufacture of 300,000 cricket bats is as follows: STANDARDS ACTUAL Direct Material 9,000 units @ Rs. 110 8,800 units @ Rs. 115 Direct Labor 8,000 hours @ Rs. 100 8,500 hours @ Rs. 95 Factory Overhead 80% of Direct Labor Rs. 600,000 All costs are charged to work in process at standard and separate variances accounts are established. There is no beginning or ending inventory of work in process Required: Material Price Variance and Material Quantity Variance Labor Rate Variance and Labor Time Variance Overhead Variance Entries in general journal to record the above information Compare the actual cost of one cricket bat with its standard cost.
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.
Miandad Sports Corporation uses standard cost system. The cost data for various elements of cost for the manufacture of 300,000 cricket bats is as follows:
|
|
STANDARDS |
ACTUAL
|
|
Direct Material |
9,000 units @ Rs. 110 |
8,800 units @ Rs. 115 |
|
Direct Labor |
8,000 hours @ Rs. 100 |
8,500 hours @ Rs. 95 |
|
Factory |
80% of Direct Labor |
Rs. 600,000 |
All costs are charged to work in process at standard and separate variances accounts are established. There is no beginning or ending inventory of work in process
Required:
- Material Price Variance and Material Quantity Variance
- Labor Rate Variance and Labor Time Variance
- Overhead Variance
- Entries in general journal to record the above information
- Compare the actual cost of one cricket bat with its standard cost.
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