Chapter 26, Problem 8E

(a)

To determine

Variances: The variances are used to calculate the variation in actual cost by comparing it to the standard cost. Variances normally find the gap in cost that is actually incurred and cost which was estimated by the business.

Total Material Variances: The variance which is used to determines the variationin actual direct material by comparing it to the standard direct material.

Material Price Variance: The variation in actual price and the standard price is called material price variance. It is the difference of actual amount paid for material and the standard amount that should have been paid for the material.

Material Quantity Variance: The variation in the actual quantity times the standard price and standard quantity times the standard price for the material is called material quantity variance.

Total Labor Variance: The total labor variance is the variation in the amount actually paid for the labor and the amount that must have been paid for labor. It is the sum of labor price variance and the labor quantity variance.

Labor Price Variance: The variation in the wage rate paid to workers and rate that was expected to be paid to the worker is called labor price variance.

Labor Quantity Variance: The variation in the amount that should have been paid for the hours worked and the amount that must have been paid for the amount of hours that should have been worked is called labor quantity variance.

To determine: The total, price and quantity variances for materials and labor.

(b)

To determine

To identify: The two possible explanations for each of the unfavorable variances and the responsibility for the unfavorable result might be placed.