The standard cost sheet for Chambers Company, which manufactures one product, follows: Direct materials, 40 yards at $3.00 per yard $ 120 Direct labor, 4 hours at $20 per hour 80 Factory overhead applied at 80% of direct labor (variable costs = $50; fixed costs = $14) 64 Variable selling and administrative 69 Fixed selling and administrative 45 Total unit costs $ 378 Standards have been computed based on a master budget activity level of 29,300 direct labor-hours per month. Actual activity for the past month was as follows: Materials used 201,000 yards at $3.05 per yard Direct labor 21,000 hours at $22.00 per hour Total factory overhead $ 430,000 Production 4,800 units Required: Prepare variance analyses for the variable and fixed costs. Materials are purchased as they are used. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)
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
| Direct materials, 40 yards at $3.00 per yard | $ | 120 | |
| Direct labor, 4 hours at $20 per hour | 80 | ||
| Factory |
|||
| (variable costs = $50; fixed costs = $14) | 64 | ||
| Variable selling and administrative | 69 | ||
| Fixed selling and administrative | 45 | ||
| Total unit costs | $ | 378 | |
Standards have been computed based on a
| Materials used | 201,000 | yards at $3.05 per yard | |
| Direct labor | 21,000 | hours at $22.00 per hour | |
| Total factory overhead | $ | 430,000 | |
| Production | 4,800 | units | |
Required:
Prepare variance analyses for the variable and fixed costs. Materials are purchased as they are used. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)
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