Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 4.6 pounds $2.50 per pound $11.50 Direct labor 0.2 hours $18.00 per hour $3.60 During the most recent month, the following activity was recorded: Twenty thousand pounds of material were purchased at a cost of $2.35 per pound. All of the material purchased was used to produce 4,000 units of Zoom. 750 hours of direct labor time were recorded at a total labor cost of $14,925.
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.
Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below:
|
Standard Quantity or Hours |
Standard Price or Rate |
Standard Cost |
|
|
Direct materials |
4.6 pounds |
$2.50 per pound |
$11.50 |
|
Direct labor |
0.2 hours |
$18.00 per hour |
$3.60 |
During the most recent month, the following activity was recorded:
- Twenty thousand pounds of material were purchased at a cost of $2.35 per pound.
- All of the material purchased was used to produce 4,000 units of Zoom.
- 750 hours of direct labor time were recorded at a total labor cost of $14,925.
Required:
- Compute the materials price and quantity variances for the month.
- Compute the labor rate and efficiency variances for the month.
EXERCISE 10–7 Direct Materials Variances LO10–1
Refer to the data in Exhibit 10–6. Assume that instead of producing 4,000 units during the month, the company produced only 3,000 units, using 14,750 pounds of material. (The rest of the material purchased remained in raw materials inventory.)
Compute the materials price and quantity variances for the month.
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