Donwoo Co. produces a single product and has prepared the following standard cost sheet for one unit of the product. Direct materials 3 pounds at $12 per pound Direct labor 4 hours at $5 per hour During the month of June, the company manufactures 500 units and incurs the following actual costs. Direct materials purchased and used (1,485 pounds) $17,890 Direct labor (2,025 hours) $10,200 Instructions (a) Compute the total, price, and quantity variances for materials. (b) Compute the total, price, and quantity variances for labor. (c) If factory manager to use the budget by assuming an efficiency in operation through reducing the duration of production into 95% of the innitial condition, compute the total, price, and quantity variances for labor.
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.
Donwoo Co. produces a single product and has prepared the following
the product.
Direct materials 3 pounds at $12 per pound
Direct labor 4 hours at $5 per hour
During the month of June, the company manufactures 500 units and incurs the following actual costs.
Direct materials purchased and used (1,485 pounds) $17,890
Direct labor (2,025 hours) $10,200
Instructions
(a) Compute the total, price, and quantity variances for materials.
(b) Compute the total, price, and quantity variances for labor.
(c) If factory manager to use the budget by assuming an efficiency in operation through reducing the
duration of production into 95% of the innitial condition, compute the total, price, and quantity variances for
labor.
In August, the budget committee of Donwoo Co. assembles the following data in preparation of budgeted
merchandise purchases for the month of August.
1. Expected sales: August $750,000, September $900,000.
2. Cost of goods sold is expected to be 80% of sales.
3. Desired ending merchandise inventory is 40% of the following (next) month's cost of goods sold.
4. The beginning inventory at August 1 will be the desired amount.
Instructions
(d) Compute the budgeted merchandise purchases for August.
(e) Prepare the
(f) Prepare the budgeted income statement for August through gross profit with the new assumption: the
COGS is expected to be 75% sales and desired ending merchandise inventory is 45% of the following
(next) month's COGS.
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