SW has developed the following standards for one of its products: STANDARD VARIABLE COST CARD ONE UNIT OF PRODUCT Direct materials: 20 square feet $100.00 Direct labour: $7 per hour 28.00 Variable overhead: 4 hours ´ 16.00 Total standard variable cost per unit $144.00 The company records materials price variances at the time of purchase. The following activities relate to the month of April: Actual Materials purchased 90,000 square feet at $6.10 per sq. foot Actual Materials used 82,000 square feet Actual units sold 6,000 units Actual Units produced 4,200 units Budgeted units 4,500 units Actual Direct labour 15,500 hours at $6.25 per hour Actual Variable overhead $59,000
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.
SW has developed the following standards for one of its products:
|
ONE UNIT OF PRODUCT |
|
|
|
|
|
Direct materials: 20 square feet |
$100.00 |
|
Direct labour: $7 per hour |
28.00 |
|
Variable |
16.00 |
|
Total standard variable cost per unit |
$144.00 |
The company records materials price variances at the time of purchase.
The following activities relate to the month of April:
|
Actual Materials purchased |
90,000 square feet at $6.10 per sq. foot |
|
Actual Materials used |
82,000 square feet |
|
Actual units sold |
6,000 units |
|
Actual Units produced |
4,200 units |
|
Budgeted units |
4,500 units |
|
Actual Direct labour |
15,500 hours at $6.25 per hour |
|
Actual Variable overhead |
$59,000 |
Required:
a. Calculate the labour efficiency variance and indicate whether it is favorable or unfavorable.
b. Calculate the variable overhead spending variance and indicate whether it is favorable or unfavorable.
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