Standard costs

Introduction

Standard costs are used to help manage and analyze a company's cost. With a standard to which an actual cost can be compared, managers can determine if too much labor or materials were used. They can develop cost-cutting strategies to help improve the company's bottom line. Standard costs can also be used to help ensure quality. using standard costs to determine variance.

Ace Airways has two aircraft types: Boeing 737 and Airbus A320. The budget for the month of June included 3 maintenance checks on the B737 and 2 maintenance checks on the A320. The budgeted cost of one check on the B737 is $250,000 and $300,000 for one check on the A320.

The actual results were 2 maintenance checks on the B737 and 3 maintenance checks on the A320. The actual costs were $275,000 per check for the B737 and the costs for the A320 checks were $315,000 per check.

Instructions

Prepare the following information in a document:

1. Compute the volume variance for the month of June.
2. Compute the rate variance for the month of June.
3. State whether each volume variance and rate variance is favorable or unfavorable.