Marietta co. adopted a standard cost system several years ago. The standard costs for the prime costs of its single product follow: Material: 10 kg @ P4.50/kg P45.00 Labor: 6 hours @ P8.50/hr P51.00 The following operating data were taken from the records for November: Units completed 5,800 units Budgeted output 6,000 units Materials purchased 60,000 kg Total actual labor costs P306,600 Actual hours of labor 36,500 hours Material usage variance P2,250 unfavorable Total material variance P450 unfavorable Required: Compute for the following: Actual cost paid per kilogram Labor efficiency variance
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.
Problem 1
Marietta co. adopted a
Material: 10 kg @ P4.50/kg P45.00
Labor: 6 hours @ P8.50/hr P51.00
The following operating data were taken from the records for November:
Units completed 5,800 units
Budgeted output 6,000 units
Materials purchased 60,000 kg
Total actual labor costs P306,600
Actual hours of labor 36,500 hours
Material usage variance P2,250 unfavorable
Total material variance P450 unfavorable
Required: Compute for the following:
- Actual cost paid per kilogram
- Labor efficiency variance
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