Question
Gauging the Favorableness of Variances When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money
Gauging the Favorableness of Variances When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad. Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual). If a company calculates that the actual cost for the actual hours worked by employees was $4,000,000, and the amount budgeted for those hours actually worked was $4,800,000, the actual cost for hours worked less the budgeted cost for hours worked is $ This tells you that the actual cost at actual hours worked is less than the budgeted cost at actual hours worked. What type of variance is this? Favorable direct labor rate variance If a company calculates that the budgeted cost for actual hours worked is $100,000, and the budgeted cost at the budgeted amount of hours to have been worked is $100,000, the budgeted cost at actual time worked less the budgeted cost at budgeted hours to have been worked is $ . This tells you that the actual hours worked at budgeted cost is equal to budgeted hours worked at budgeted cost. What type of variance is this? No Variance Standard Direct Labor Cost The controller at your shoemaking company has determined that under normal conditions, you pay your employees $8.40 per hour, and it will take 2.6 hours of labor per pair of shoes. Given this information, calculate the standard cost of labor per pair of shoes. If required, round the standard labor per pair of shoes to the nearest cent. Manufacturing Costs Direct Labor Standard Price Standard Hours per Pair = Standard Cost per Pair per hour hours Feedback Check My Work Use the standard price and standard hours values shown to compute the standard labor cost per pair. Actual Direct Labor Cost During May, your shoe-making company incurred actual direct labor costs of $62,211 for 6,990 hours of direct labor in the production of 2,175 pairs of shoes. Given this information, calculate the actual cost of labor per hour. If required, round the actual cost of labor per hour to the nearest cent. Manufacturing Costs Actual Total Cost / Actual Total Hours = Actual Cost per Hour Direct Labor hours $ Illustrated Example: Calculating Direct Labor Cost Variance Complete the following graphic to compute the direct labor rate variance, the direct labor time variance, and the total direct labor cost variance for your shoe-making business. When required, enter the rates as dollars and cents. If required, use the minus sign to indicate a negative value. Actual Hours Actual Cost = Standard Cost Standard Rate Standard Hours X $ Actual Rate Actual Hours X Direct Labor Rate Variance $ $ U Direct Labor Time Variance X X Calculating Direct Labor Cost Variance g graphic to compute the direct labor rate variance, the direct labor time variance, and the total direct labor cost -making business. When required, enter the rates as dollars and cents. If required, use the minus sign to indicate a Actual Cost Actual Rate Actual Hours ct Labor Rate Variance $ = $ U Standard Cost Standard Rate Standard Hours Direct Labor Time Variance $ = Standard Rate Gauging the Favorableness of Variances When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad. Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual). If a company calculates that the actual cost for materials used was $3,500,000, and the amount budgeted for those materials was $3,200,000, the actual cost for materials used less the budgeted cost for materials used is $ . This tells you that the actual cost at actual materials used is greater than What type of variance is this? Unfavorable direct materials price variance the budgeted cost at actual hours worked. If a company calculates that the budgeted cost for actual materials used is $150,000, and the budgeted cost at the budgeted amount of materials to have been used is $200,000, the budgeted cost at actual materials used less the budgeted cost at budgeted materials to have been used is $ . This tells you that the actual materials used at budgeted cost is less than the budgeted materials used at budgeted cost. What type of variance is this? Favorable direct materials quantity variance Standard Materials Cost The controller at your shoemaking company has determined that under normal conditions, you will spend $8.30 per unit of materials, and it will take 2.6 units of material per pair of shoes. Given this information, calculate the standard cost of materials per pair of shoes. If require, round the standard cost per pair of shoes to the nearest cent. Standard Price Manufacturing Costs per Unit of Material x Direct Materials Feedback per unit Standard Materials Standard Cost per Pair per Pair units Check My Work Use the standard price and standard materials values shown to compute the standard cost per pair. Actual Materials Cost During January, your shoemaking company incurred actual direct materials costs of $58,872 for 6,690 units of direct materials in the production of 2,150 pairs of shoes. Given this information, calculate the actual cost of materials per unit. If require, round the actual cost of materials per unit to the nearest cent. Actual Total Cost Actual Materials Actual Cost Manufacturing Costs of Materials Used per Unit Direct Materials units APPLY THE CONCEPTS: Conduct the Direct Materials Cost Variance Analysis Complete the following graphic to compute the direct materials price variance, the direct materials quantity variance, and the total direct materials cost variance for your shoe-making business. When required, enter the rates as dollars and cents. If required, use the minus sign to indicate a negative value. Illustrated Example: Calculating Direct Materials Cost Variance Actual Materials X Actual Cost Standard Cost Actual Rate Actual Materials Standard Rate Standard Materials = Direct Materials Price Variance $ Direct Materials Quantity Variance X Direct Materials Price Variance U $ X Direct Materials Quantity Variance Total Direct Materials Cost Variance U
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