e CNot secure v2.cengagenow.comkgnmentytake Chapter 10 Basics of Varlance Analys

Question

e CNot secure v2.cengagenow.comkgnmentytake Chapter 10 Basics of Varlance Analysis, Variable Inputs nsur as waste Disposal Company has a long-term contract with several Large dties to cold garbage and trash from resi ial antone, Tfac 1. Because of wear and tea, growth, and other tacters, Basuras places about 200,000 new centainers oach rea, (about 20% ofthe total households). containers as a cost-saving measure. A strategically located plant involved in this type of manufacturing was acquired. To help ensure cost efficiency, a standards have been established for the product's variable inputs standard cost system was installed in the plant. The folloning standard Standard Price (rate in $) Quantity Direct materials Direct labor Variable 3.50 12 lbs 1.70 hrs 1.70 hrs 42.00 18.70 5.10 3.00 Ouring the first week in January,Rasuras had the folowing actual resus units preduced Actual labor cests Actual labor hours Materials parchased and used Actual variable overhead costs 6,200 121,800 9,000 3.S 48,250 muterial w sed durling the fest wek in uary Als mnufactunting prcess s entedonlTh The purchasing agent located a new seurce of slightly higher quaity platis and

Explanation / Answer

Question 1). Solution :-

Material price variance = Actual quantity of material purchased * (Standard price of material per unit - Actual price of material per unit.)

= 69000 * (3.50 - 3.55)

= $ 3450 (Unfavourable).

Material usage variance = Standard price of material per unit * (Standard quantity of material for actual output - Actual quantity of material used in the production of actual output.)

= 3.50 * (6200 * 12 - 69000)

= 3.50 * (74400 - 69000)

= 3.50 * 5400

= $ 18900 (Favourable).

Effect :- The new process saves money.

Net amount of effect = 18900 - 3450 = $ 15450 (Favourable).

Question 2). Solution :-

Labor rate variance = Actual Hours worked * (Standard rate per hour worked - Actual rate per hour worked)

= 10800 * (11 - 121800 / 10800)

= 118800 - 121800

= $ 3000 (Unfavourable)

Labor efficiency variance = Standard rate per hour * (Standard hours worked for actual output - Actual hours worked for producing the output.)

= 11 * (1.70 * 6200 - 10800)

= 11 * (10540 - 10800)

= $ 2860 (Unfavourable).

Effect :- The new process costs more money.

Net amount of effect = (-) 3000 + (-) 2860 = (-) 5860 i.e., $ 5860 (Unfavourable).

Conclusion :-

Material price variance $ 3450 (Unfavourable) Material usage variance $ 18900 (Favourable) Labor rate variance $ 3000 (Unfavourable) Labor efficiency variance $ 2860 (Unfavourable).

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