XYZ Corporation produces a product that has the following standard costs: $108 Direct materials: 40 yards at $2.70 per yard Direct labor: 8 hours at $18.00 per hour Total 144 $252 The following information pertains to July: Direct material purchased: 42,500 yards at $2.78 per yard, or $118,150 Direct material used: 36,000 yards Direct labor: 7,500 hours at $18.30 per hour, or $137,250 Actual completed production: 1,050 units Required: Calculate the direct-material price and quantity variances and the direct-labor rate and efficiency variances. Indicate whether each variance is 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.
Based on the attached image, answer the following question:
1. What is the direct-material price variance?
2. What is the direct-material quantity variance?
3. What is the labor rate variance?
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