Question

Inc. produced 1,000 units of the​ company's product in 2016. The standard quantity of direct materials was three yards of cloth per unit at a standard cost of $ 1.40 per yard. The accounting records showed that 2,400 yards of cloth were used and the company paid $ 1.45 per yard. Standard time was two direct labor hours per unit at a standard rate of $ 9.75 per direct labor hour. Employees worked 1, 900 hours and were paid $ 9.25 per hour.

Requirements 1. What are the benefits of setting cost​standards?

2. Calculate the direct materials cost variance and the direct materials efficiency variance as well as the direct labor cost and efficiency variances.

Answer 1

Instructions are listed below

Step-by-step explanation:

Giving the following information:

Inc. produced 1,000 units of the​ company's product in 2016. The standard quantity of direct materials was three yards of cloth per unit at a standard cost of $ 1.40 per yard. The accounting records showed that 2,400 yards of cloth were used and the company paid $ 1.45 per yard. Standard time was two direct labor hours per unit at a standard rate of $ 9.75 per direct labor hour. Employees worked 1, 900 hours and were paid $ 9.25 per hour.

1) Standard costs are beneficial because they set a limit on which to perform. It gives a route to follow and an objective to achieve.

2) Direct material price variance= (standard price - actual price)*actual quantity

Direct material price variance= (1.40 - 1.45)*2,400= $120 unfavorable

Direct material quantity variance= (standard quantity - actual quantity)*standard price

Direct material quantity variance= (3yards*1000units - 2400)*1.40= $840 favorable

Direct labor efficiency variance= (SQ - AQ)*standard rate

Direct labor efficiency variance= (2hours*1000 units - 1,900)*9.75= $975 unfavorable

Direct labor price variance= (SR - AR)*AQ

Direct labor price variance= (9.75 - 9.25)*1900= $950 favorable