Material price variance = (Standard price per gram - Actual price per gram) * Actual quantity of material used = (P5 - P6) * 14000 = P14,000 (Unfavourable) Material efficiency variance = (Standard quantity of materials - Actual material quantity used) * Standard price per gram = (12000 - 14000) * 5 = P10,000 (Unfavourable) Total materials cost variance = Materials price variance + Materials efficiency variance = (P14,000) + (P10,000) = P24,000 (Unfavourable) For Direct labour, Standard labour hours allowed for actual production = Actual units produced * Standard hours per unit = 2000 units * 1.8 hours = 3600 hours Direct labour rate variance = (Standard labour rate - Actual labour rate) * Actual labour hours used = (P100 - P97.5) * 4000 = P10,000 (Favourable) Direct labour efficiency variance = (Standard labour hours - Actual labour hours) * Standard labour rate = (3600 - 4000) * 100 = P40,000 (Unfavourable) Total direct labour cost variance = Direct labour rate variance + Direct labour efficiency variance = P10,000 - (P40,000) = P30,000 (Unfavourable) For Variable manufacturing overheads: Actual variable manufacturing overhead cost per hour = Actual variable manufacturing overhead costs/ Actual direct labour hours = P208,000/P4000 = P52 per hour Variable manufacturing overhead rate variance = (Standard variable manufacturing overhead rate - Actual variable manufacturing overhead rate) * Actual labour hours = (P50 - P52) * 4000 = P8000 (Unfavourable) Variable manufacturing overhead efficiency variance = (Standard labour hours - Actual labour hours) * Standard variable manufacturing overhead rate per hour = (3600 - 4000) * 50 = P20,000 (Unfavourable) Total variable manufacturing overheads variance = Variable manufacturing overhead rate variance + Variable manufacturing overhead efficiency variance = (P8000) + (P20,000) = P28,000 (Unfavourable) Requirement Make the Journal Entries to record the following variances: Direct materials variance Direct labor variance Variable manufacturing overhead variances
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.
Material price variance = (Standard price per gram - Actual price per gram) * Actual quantity of material used
= (P5 - P6) * 14000 = P14,000 (Unfavourable)
Material efficiency variance = (Standard quantity of materials - Actual material quantity used) * Standard price per gram
= (12000 - 14000) * 5 = P10,000 (Unfavourable)
Total materials cost variance = Materials price variance + Materials efficiency variance
= (P14,000) + (P10,000) = P24,000 (Unfavourable)
For Direct labour,
Standard labour hours allowed for actual production = Actual units produced * Standard hours per unit
= 2000 units * 1.8 hours = 3600 hours
Direct labour rate variance = (Standard labour rate - Actual labour rate) * Actual labour hours used
= (P100 - P97.5) * 4000 = P10,000 (Favourable)
Direct labour efficiency variance = (Standard labour hours - Actual labour hours) * Standard labour rate
= (3600 - 4000) * 100 = P40,000 (Unfavourable)
Total direct labour cost variance = Direct labour rate variance + Direct labour efficiency variance
= P10,000 - (P40,000) = P30,000 (Unfavourable)
For Variable manufacturing
Actual variable
= P208,000/P4000 = P52 per hour
Variable manufacturing overhead rate variance = (Standard variable manufacturing overhead rate - Actual variable manufacturing overhead rate) * Actual labour hours
= (P50 - P52) * 4000 = P8000 (Unfavourable)
Variable manufacturing overhead efficiency variance = (Standard labour hours - Actual labour hours) * Standard variable manufacturing overhead rate per hour
= (3600 - 4000) * 50 = P20,000 (Unfavourable)
Total variable manufacturing overheads variance = Variable manufacturing overhead rate variance + Variable manufacturing overhead efficiency variance
= (P8000) + (P20,000) = P28,000 (Unfavourable)
Requirement
Make the
-
- Direct materials variance
- Direct labor variance
- Variable manufacturing overhead variances
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