Answered: Direct materials cost variance = (AC -…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 10E: SmokeCity, Inc., manufactures barbeque smokers. Based on past experience, SmokeCity has found that...

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Premium Fender, which uses a standard cost system, manufactured

20,000 boat fenders during 2018, using 144,000 square feet of extruded vinyl purchased at $1.05 per square foot. Production required 460 direct labor hours that cost $15.50 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of $1.10 per square foot. The labor standard was 0.025 direct labor hour per fender, at a standard cost of $14.50 per hour

(I don't understand how to find the numbers for the direct materials and direct labor. For example: AC, SC, AQ, SQ or if it is favorable or unfavorable)

	Direct Materials	Direct labor
Actual Cost (AC)
Standard Cost (SC)
Actual Quantity (AQ)
Standard Quantity (SQ)

Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)

		Formula		Variance
Direct materials cost variance	=	(AC - SC) x AQ	=	$7,200	F
Direct labor cost variance	=	(AC - SC) x AQ	=	$460	U

Select the required formulas, compute the efficiency variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U).(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)

		Formula		Variance
Direct materials efficiency variance	=	(AQ - SQ) x SC	=
Direct labor efficiency variance	=	(AC - SC) x AQ	=

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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Direct materials cost variance = (AC - SC) x AQ = $7,200 F Direct labor cost variance