The following data for DEF Company pertain to the production of 450 units of product X during June. Selected items are omitted because the costing records were lost in a computer breakdown. Direct Materials (All materials purchased were used.) Standard cost per unit: a grams at $4.00 per gram. Total actual cost: b grams costing $9,600. Standard cost allowed for units produced was $9,000. Materials price variance: c . Materials efficiency variance was $80 unfavorable. Direct Manufacturing Labor Standard cost is 3 hours per unit at $8.00 per hour. Actual cost per hour was $8.25. Total actual cost: d . Labor price variance: e . Labor efficiency variance was $400 unfavorable. Required: Compute the missing elements in the report represented by the lettered items. How might a manager gain insight into the causes of a flexible-budget variance for direct materials, direct labor? What can be the potential reasons? What kind of corrective actions can be taken by the management? How does variance analysis help in continuous improvement?
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.
The following data for DEF Company pertain to the production of 450 units of product X during June. Selected items are omitted because the costing records were lost in a computer breakdown.
Direct Materials (All materials purchased were used.)
Total actual cost: b grams costing $9,600.
Standard cost allowed for units produced was $9,000.
Materials price variance: c .
Materials efficiency variance was $80 unfavorable.
Direct Manufacturing Labor
Standard cost is 3 hours per unit at $8.00 per hour.
Actual cost per hour was $8.25.
Total actual cost: d .
Labor price variance: e .
Labor efficiency variance was $400 unfavorable.
Required:
- Compute the missing elements in the report represented by the lettered items.
- How might a manager gain insight into the causes of a flexible-
budget variance for direct materials, direct labor? What can be the potential reasons? What kind of corrective actions can be taken by the management? - How does
variance analysis help in continuous improvement?
Step by step
Solved in 4 steps
