Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 29

Variable Cost Variances

The records of Simon Company show the following for February:

Standard labor-hours allowed per unit of output	1.5
Standard variable overhead rate per standard direct labor-hour	$30
Good units produced	60,000
Actual direct labor-hours worked	92,000
Actual total direct labor	$1,975,000
Direct labor efficiency variance	$40,000 U
Actual variable overhead	$2,560,000

Required

Compute the direct labor and variable overhead price and efficiency variances.

Step 1 of 4

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.

Standards

Standards term is used for expected cost per unit including costs like direct materials, direct labor, overheads etc. It is calculated by diving total budgeted manufacturing cost with budgeted number of units to be produced.

Budgets

Budgets refers to a division or firms projected cost, revenue and profitability. It is used to project the cost, revenue and profitability at different activity levels. It helps companies to plans its funding, manpower and business operations. It helps to evaluate the performance also of a firm or division by comparing the budgeted amounts with actual results.