Quiz 10: Standard Costs and Variances
1)Since there are 4,000 blocks and the standard for one board is 2.5 ft, only 10,000 board ft are allowed as the standard (4,000 x 2.5). To calculate the total standard cost, multiply the number of board feet allowed by the standard cost per ft. Next, the spending variance can be calculated as: 2)Materials quantity variance is calculated as the difference of standard price (SP) at the standard quantity (SQ) and the SP at the actual quantity of input (AQ). Materials price variance is the difference between AQ and the actual price (AP) and the AQ at the SP.
A quantity standard indicates how much of an input should be used to make a unit of output. A price standard indicates how much the input should cost.
1. Calculate the direct labor cost that incurred to prepare 6,000 meals as follows: • Calculate total direct labor hours allowed. • Calculate direct labor cost using direct labor hours allowed. Firstly, calculate total direct labor hours allowed. It is calculated by multiplying the number of meals prepared with standard direct labor hours per meal. Calculate total standard direct labor cost. Calculate the difference of standard direct labor cost and actual labor cost. Deduct standard direct labor cost from actual labor cost incurred. 2. Break down the above calculated difference amount into labor efficiency variance and labor efficiency variance. Calculate labor efficiency variance by multiplying the difference of actual hours and standard hours with standard rate. Calculate labor rate variance by multiplying the difference of actual rate standard rate with actual hours. If both labor efficiency variance and labor rate variance are added, the result would be equal to the above calculated difference.