Amber Company produces iron table and chair sets. During October, Amber’s costs were as follows: Actual purchase price $ 1.70 per pound Actual direct labor rate $ 6.90 per hour Standard purchase price $ 1.50 per pound Standard quantity for sets produced 910,000 pounds Standard direct labor hours allowed 15,000 Actual quantity purchased in October 1,055,000 pounds Actual direct labor hours 11,000 Actual quantity used in October 940,000 pounds Direct labor rate variance $4,950 f Calculate the total cost of purchases for October. Compute the direct materials price variance based on the actual quantity purchased. Calculate the direct materials quantity variance based on the actual quantity used.
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.
Amber Company produces iron table and chair sets. During October, Amber’s costs were as follows:
Actual purchase price | $ 1.70 per pound | |
---|---|---|
Actual direct labor rate | $ 6.90 per hour | |
Standard purchase price | $ 1.50 per pound | |
Standard quantity for sets produced | 910,000 pounds | |
Standard direct labor hours allowed | 15,000 | |
Actual quantity purchased in October | 1,055,000 pounds | |
Actual direct labor hours | 11,000 | |
Actual quantity used in October | 940,000 pounds | |
Direct labor rate variance | $4,950 f |
- Calculate the total cost of purchases for October.
- Compute the direct materials price variance based on the actual quantity purchased.
- Calculate the direct materials quantity variance based on the actual quantity used.
- Compute the standard direct labor rate for October.
- Compute the direct labor efficiency variance for October.
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