The following describes production activities of Mercer Manufacturing for the year. Actual direct materials used . 16,000 lbs. at $4.05 per lb. Actual direct labor used 5,545 hours for a total of $105,355 Actual units produced . 30,000 Budgeted standards for each unit produced are 0.50 pound of direct material at $4.00 per pound and 10 minutes of direct labor at $20 per hour. 1. Compute the direct materials price and quantity variances and classify each as favorable or unfavorable. 2. Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable.
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 describes production activities of Mercer Manufacturing for the year. Actual direct materials used . 16,000 lbs. at $4.05 per lb.
Actual direct labor used 5,545 hours for a total of $105,355
Actual units produced . 30,000
Budgeted standards for each unit produced are 0.50 pound of direct material at $4.00 per pound and 10
minutes of direct labor at $20 per hour.
1. Compute the direct materials price and quantity variances and classify each as favorable or unfavorable.
2. Compute the direct labor rate and efficiency variances and classify each as favorable or unfavorable.
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