Raw Material Standard Labor Time Sintering 0.20 hours 0.35 hours X442 Y661 Finishing Product Alpha6..... 1.8 kilos 2.0 liters 4.5 liters 0.80 hours 0.90 hours 3.0 kilos Zeta7... Material Purchases 14,500 kilos 15,500 liters Purchase Cost Standard Price Used in Production X442 Y661 $52,200 $20,925 $3.50 per kilo $1.40 per liter 8,500 kilos 13,000 liters
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.
Multiple Products, Materials, and Processes
Mickley Corporation produces two products, Alpha6s and Zeta7s, which pass through two operations Sintering and Finishing. Each of the products uses two raw materials—X442 and Y661. The company uses a
The following additional information is available:
a. The company recognizes price variances when materials are purchased.
b. The standard labor rate is $19.80 per hour in Sintering and $19.20 per hour in Finishing.
c. During May, 1,200 direct labor-hours were worked in Sintering at a total labor cost of $27,000, and 2,850 direct labor-hours were worked in Finishing at a total labor cost of $59,850.
d. Production during May was 1,500 Alpha6s and 2,000 Zeta 7s.
Required:
1. Prepare a standard cost card for each product, showing the standard cost of direct materials and direct labor.
2. Compute the materials price and quantity variances for each material.
3. Compute the labor rate and efficiency variances for each operation.
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