E9-6 (Algo) Calculating Direct Materials and Direct Labor Variances [LO 9-3, 9-4) Crystal Charm Company makes handcrafted silver charms that attach to jewelry such as a necklace or bracelet. Each charm is adorned with two crystals of various colors. Standard costs follow: Silver Crystals Direct labor Standard Quantity 0.50 ounce 2.00 1.50 hours Standard Price (Rate). $ 22.00 per ounce $ 0.35 crystal $ 12.00 per hours Standard Unit Cost $ 11.00 0.70 18.00 During the month of January, Crystal Charm made 1,650 charms. The company used 785 ounces of silver (total cost of $18,055) and 3.350 crystals (total cost of $1,105.50), and paid for 2,625 actual direct labor hours (cost of $30,187.50). Required: 1. Calculate Crystal Charm's direct materials variances for silver and crystals for the month of January. 2. Calculate Crystal Charm's direct labor variances for the month of January.
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.
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