E11-6 answer - Standard cost suggests what the reasonable...

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Standard cost suggests what the reasonable cost should be under the given set of conditions. Standards are set for material, labor and overhead. Standard can be defined as a benchmark or norm for measuring performance. Standard cost for each element of cost is compared with actual cost and variances are calculated. A variance is the difference between standard prices and quantities and actual prices and quantities. Material price variance represents the difference between actual price and standard price of actual material used. Material Quantity Variance on the other hand represents the difference between standard cost of actual usage and standard usage of material. Computation of Material variances 1) Direct Material (Total) variance = (Actual Quantity x Actual price) – (Standard quantity X Standard price) OR Direct material variance = (AQ x AP) – (SQ x SP) (1250 tons x $128) – (1200 tons x $130) = $4000(U) 2) Direct material price variance = Actual Quantity (Actual price – Standard price)
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E11-6 answer - Standard cost suggests what the reasonable...

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