Calculating the Direct Labor Rate Variance and the Direct Labor Efficiency Variance
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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.
Calculating the Direct Labor Rate Variance and the Direct Labor Efficiency Variance
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- Calculating Standard Quantities for Actual ProductionGuillermo’s Oil and Lube Company is a service company that offers oil changes and lubricationfor automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 24 minutes and 6.2 quarts of oil are used. In June, Guillermo’s Oil and Lube had 980 oilchanges. Required:1. Calculate the number of quarts of oil that should have been used (SQ) for 980 oil changes.2. Calculate the hours of direct labor that should have been used (SH) for 980 oil changes.3. What if there had been 970 oil changes in June? Would the standard quantities of oil (in quarts) and of direct labor hours be higher or lower than the amounts calculated in Require-ments 1 and 2? What would the new standard quantities be?Calculating the Direct Labor Rate Variance and the Direct Labor Efficiency Variance Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 30 minutes and 6.2 quarts of oil are used. In June, Guillermo's Oil and Lube had 960 oil changes. Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June:Actual number of oil changes performed: 960Actual number of direct labor hours worked: 474 hoursActual rate paid per direct labor hour: $14.50Standard rate per direct labor hour: $13.50Calculating the Direct Labor Rate Variance and the Direct Labor Efficiency Variance Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 30 minutes and 6.2 quarts of oil are used. In June, Guillermo's Oil and Lube had 950 oil changes. Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June:Actual number of oil changes performed: 950Actual number of direct labor hours worked: 467 hoursActual rate paid per direct labor hour: $15.50Standard rate per direct labor hour: $15.00 Required: 1. What if the actual wage rate paid in June was $14.50? What impact would that have had on the direct labor rate variance (LRV)? On the direct labor efficiency variance (LEV)? Indicate what the new variances would be below. If required, round your answers to the nearest cent. Direct labor rate…
- Calculating the Direct Labor Rate Variance and the Direct Labor Efficiency Variance Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 30 minutes and 6.2 quarts of oil are used. In June, Guillermo's Oil and Lube had 950 oil changes. Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June:Actual number of oil changes performed: 950Actual number of direct labor hours worked: 467 hoursActual rate paid per direct labor hour: $15.50Standard rate per direct labor hour: $15.00 Required: 1. Calculate the direct labor rate variance (LRV) and the direct labor efficiency variance (LEV) for June using the formula approach. Direct labor rate variance (LRV) $fill in the blank Direct labor efficiency variance (LEV) $fill in the blank 2. Calculate the direct labor rate variance…Calculating the Direct Labor Rate Variance and the Direct Labor Efficiency Variance Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 30 minutes and 6.2 quarts of oil are used. In June, Guillermo's Oil and Lube had 980 oil changes. Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June:Actual number of oil changes performed: 980Actual number of direct labor hours worked: 486 hoursActual rate paid per direct labor hour: $16.00Standard rate per direct labor hour: $15.00 Required: 1. Calculate the direct labor rate variance (LRV) and the direct labor efficiency variance (LEV) for June using the formula approach. Direct labor rate variance (LRV) (Favorable or Unfavorable?) Direct labor efficiency variance (LEV) (Favorable or Unfavorable?) 2. Calculate the direct…Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 30 minutes and 6.4 quarts of oil are used. In June, Guillermo's Oil and Lube had 1,000 oil changes. Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June: Actual number of oil changes performed: 1,000Actual number of quarts of oil used: 6,960 quartsActual price paid per quart of oil: $5.30Standard price per quart of oil: $5.25 1. What if the actual number of quarts of oil purchased in June had been 6880 quarts, and the materials price variance was calculated at the time of purchase? If required, round your answers to the nearest cent. What would be the materials price variance (MPV)? What would be the materials usage variance (MUV)?
- Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 30 minutes and 6.2 quarts of oil are used. In June, Guillermo's Oil and Lube had 960 oil changes. Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June:Actual number of oil changes performed: 960Actual number of direct labor hours worked: 472 hoursActual rate paid per direct labor hour: $14.50Standard rate per direct labor hour: $14.00 Required: If required, round your answers to the nearest cent. 1. Calculate the direct labor rate variance (LRV) and the direct labor efficiency variance (LEV) for June using the formula approach. Direct labor rate variance (LRV) $______ Fvaorable or Unfavorable Direct labor efficiency variance (LEV) $_______ Favorable or Unfavorable 2. Calculate the total direct labor variance for…Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 20 minutes and 6.6 quarts of oil are used. In June, Guillermo's Oil and Lube had 920 oil changes. Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June: Actual number of oil changes performed: 920Actual number of quarts of oil used: 6,580 quartsActual price paid per quart of oil: $5.00Standard price per quart of oil: $4.95 Required: 1. Calculate the direct materials price variance (MPV) and the direct materials usage variance (MUV) for June using the formula approach. If required, round your answers to the nearest cent. MPV (Favorable/Unfavorable) MUV (Favorable/Unfavorable) 2. Calculate the total direct materials variance for oil for June. If required, round your answer to the nearest cent.…Calculating the Direct Materials Price Variance and the Direct Materials Usage Variance Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 24 minutes and 7 quarts of oil are used. In June, Guillermo's Oil and Lube had 920 oil changes. Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June: Actual number of oil changes performed: 920 Actual number of quarts of oil used: 6,920 quarts Actual price paid per quart of oil: $5.40 Standard price per quart of oil: $5.35 Required: 1. Calculate the direct materials price variance (MPV) and the direct materials usage variance (MUV) for June using the formula approach. If required, round your answers to the nearest cent. MPV $ Favorable MUV $ Unfavorable 2. Calculate the total direct materials variance for oil for June. If required, round…
- Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 20 minutes and 6.4 quarts of oil are used. In June, Guillermo's Oil and Lube had 920 oil changes. Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June: Actual number of oil changes performed: 920Actual number of quarts of oil used: 6,800 quartsActual price paid per quart of oil: $5.30Standard price per quart of oil: $5.20 Required: 1. Calculate the direct materials price variance (MPV) and the direct materials usage variance (MUV) for June using the formula approach. If required, round your answers to the nearest cent. MPV $_______ Unfavorable MUV $______ Unfavorable 2. Calculate the total direct materials variance for oil for June. If required, round your answer to the nearest cent. $__________ Unfavorable 3. What…Zippy Inc. manufactures a fuel additive, Surge, which has a stable selling price of $44 per drum. The company has been producing and selling 80,000 drums per month. In connection with your examination of Zippy's financial statements for the year ended September 30, management has asked you to review some computations made by Zippy's cost accountant. Your working papers disclose the following about the company's operations: Standard costs per drum of product manufactured: Materials: 8 gallons of chemicals @ $2. $16 1 empty drum. $17 Direct labor-1 hour. $10 Factory Overhead. $ 6 Costs and expenses during September: Chemicals: 645,000 gallons purchased at a cost of $1,140,000; 600,000 gallons used. Empty drums: 94,000 purchased at a cost of $94,000; 80,000 drums used. Direct labor: 81,000 hours worked at a cost of $816,480. Factory overhead: $768,000. REQUIRED: Calculate the following for September, using the formulas in Determination of Variances on pages 421–422 and 424 (Round unit…The manager of Trusty Car Inspection reviewed the monthly operating costs for the past year. The costs ranged from $4,300 for 1,300 inspections to $3,900 for 900 inspections. Requirements 1. Use the high-low method to calculate the variable cost per inspection. 2. Calculate the total fixed costs. 3. Write the equation and calculate the operating costs for 1,000 inspections. 4. Draw a graph illustrating the total cost under this plan. Label the axes, and show the costs at 900, 1,000, and 1,300 inspections.