Question

Superior, Inc. produced 1.000 units of the company's product in 2018. The standard quantity of direct materials was three yards of cloth per unit at a standard cost of $1.20 per yard. The accounting r per unit at a standard rate of $9. 75 per direct labor hour. Employe Read the requirements records showed that 2,400 yards of cloth were used and the company paid $1.25 per yard. Standard time was two direct labor hours ees worked 1,600 hours and were paid $9.25 per hour. Requirement 1. What are the benefits of setting cost standards? Standard costing helps managers do the following Requirement 2. Calculate the direct materials cost varlance and the direc t materials efficlency variance as well as the direct labor cost and efficiency variances the cost variances Select the required formulas, compute the cost variances for direct materials and direct labot, and idenlily whether each variance is Read the 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 Direct labor cost variance 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 Direct labor efficiency variance a lict or onter anu numher in the innut fields and then continue to the next question

Answer 1

Ans: Superior Inc.

a) Benefits of Standard Costing

1). Helps to evaluate the performances of different Departments

2) Fixing responsibility

3) Cost reduction

4) Improved Cost Controls

5) More useful information for managerial planning and decision making

b) Produces - 1,000 Units

Standard Quantity of material required per Unit - 3Yards

Standard Cost per Yard - $1.2

Actual Quantity of material used for 1000 units - 2,400yards  

Actual Cost per Yard- $1.25

Standard Time of Direct Labor per Unit - 2 Hours

Standard rate per Direct Labor Hour - $9.75

Actual time taken for 1,000 Units - 1,600 Hours

Actual Rate per Hour- $9.25

1) Direct Material Cost Variance = (SC*SQ) - (AC*AQ)

                                                    = ($1.2*3 yards*1,000 Units) - ($1.25*2,400Yards)

                                                    = $3,600 - $3,000

                                                    = $600(F)

2) Direct Labor Cost Variance = (SC*SH) - (AC*AH)

                                                = ($9.75*2 Hours*1000 Units) - ( $9.25*1,600 Hours)

                                                = $19,500 - $14,800

                                                = $4,700 (F)

3) Direct Material Efficiency Variance = (SQ-AQ)*SC

                                                           =(( 3 yards*1,000 Units) - 2,400 Yards)*$1.2

                                                           = (3,000Yards - 2,400 Yards) *$1.2

                                                           = $720(F)

4) Direct Labor Efficiency Variance = (SH-AH)*SC

                                                        = ((2 Hours*1000 Unit)- 1,600 Hours)*$9.75)

                                                        = (2,000 Hours - 1,600 Hours)*$9.75

                                                        = $3,900(F)

Here SH Stands For Standard Hours and AH Stands For Actual Hours