Variance Performance Analysis Cryolab Inc makes and sells a lawn fertilizer called Hypergro. The company has developed standard costs for one bag of Hypergro as follows: Standard Quantity/Hours Standard Price/Rate Standard Cost per Bag Direct Material 25 pounds ₱ 0.75 ₱18.75 Direct Labor 0.25 hours ₱69.00 ₱17.30 Variable overhead 0.25 hours ₱24.00 ₱ 6.00 Total ₱42.05 The company had no beginning inventories of any kind on January 1. Variable overhead is applied to production on the basis of standard direct labor hours. During January, the following activity was recorded by the company: Production of Fastgro: 23,000 bags Direct materials purchased: 585,000 pounds at a cost of ₱436,250 Direct labor worked: 5,800 hours at a cost of ₱397,300 Variable overhead incurred: ₱140,650 Inventory of direct materials on January 31: 8,000 pounds Compute the variances and indicate whether it is FAVORABLE (F) or UNFAVORABLE (U) in your solution sheet.
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.
Cryolab Inc makes and sells a lawn fertilizer called Hypergro. The company has developed
|
Standard Quantity/Hours |
Standard Price/Rate |
Standard Cost per Bag |
|
|
Direct Material |
25 pounds |
₱ 0.75 |
₱18.75 |
|
Direct Labor |
0.25 hours |
₱69.00 |
₱17.30 |
|
Variable |
0.25 hours |
₱24.00 |
₱ 6.00 |
|
Total |
₱42.05 |
The company had no beginning inventories of any kind on January 1. Variable overhead is applied to production on the basis of standard direct labor hours. During January, the following activity was recorded by the company:
- Production of Fastgro: 23,000 bags
- Direct materials purchased: 585,000 pounds at a cost of ₱436,250
- Direct labor worked: 5,800 hours at a cost of ₱397,300
- Variable overhead incurred: ₱140,650
- Inventory of direct materials on January 31: 8,000 pounds
Compute the variances and indicate whether it is FAVORABLE (F) or UNFAVORABLE (U) in your solution sheet.
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