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Unformatted text preview: SIOLUT ION TO TOP IC 7 TUTOR IAL TOP IC: Cost performance and reviews 1011 The directmaterial price variance is based on the quantity purchased (PQ). Deviations between the actual and standard price, which are highlighted by the price variance, relate to the purchasing function in the firm. Timely action to follow up a significant price variance is facilitated by calculating this variance as soon as possible after the material is purchased. The directmaterial quantity variance is based on the amount of material used in production (AQ). The quantity variance highlights deviations between the quantity of material actually used (AQ) and the standard quantity allowed (SQ). Therefore, it makes sense to compute this variance at the time the material is used in production. 1035 Direct Material Direct Labor Standard price or rate per unit of input... $16 per lb $20 per hr e Standard quantity per unit of output....... 2.75 lbs per unit c 4 hrs per unit f Actual quantity used per unit of output... 3 lbs per unit a 3.5 hrs Actual price or rate per unit of input....... $14 per lb $21 per hr Actual output......................................... 20,000 units 20,000 units Directmaterial price variance................. $120,000 F Directmaterial quantity variance............ $80,000 U b Total of directmaterial variances............ $40,000 F Directlabor rate variance....................... $ 70,000 U d Directlabor efficiency variance............... $200,000 F Total of directlabor variances................. $130,000 F Explanatory notes: a. Directmaterial price variance = PQ(AP SP) $120,000 F = PQ($14 $16) PQ = 60,000 lbs Actual quantity used = quantity purchased AQ = PQ = 60,000 lbs Actual quantity per unit of output = b. Total directmaterial variance = price variance + quantity variance $40,000 F = $120,000 F + quantity variance Quantity variance = $80,000 U c. Directmaterial quantity variance = SP(AQ SQ) $80,000 U = $16(60,000 SQ) SQ = 55,000 lbs Standard quantity per unit = d. Total directlabor variance = rate variance + efficiency variance $130,000 F = rate variance + $200,000 F Rate variance = $70,000 U e. AH = 20,000 units 3.5 hrs per unit = 70,000 hrs Directlabor rate variance = AH(AR SR) $70,000 U = 70,000($21 SR) SR = $20 f. Directlabor efficiency variance = SR(AH SH) $200,000 F = $20 (70,000 SH) SH = 80,000 hrs Standard hrs per unit = 80,000 hrs/20,000 units = 4 hrs per unit 1046 1. Type I fertilizer: Price variance: Actual quantity purchased x actual price 5,000 pounds x $ . 53 $2,650 Actual quantity purchased x standard price 5,000 pounds x $ . 50 2,500 Directmaterial price variance....
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This note was uploaded on 08/26/2011 for the course ACCOUNTING 211 taught by Professor Min during the Three '11 term at Curtin.
 Three '11
 min
 Accounting

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