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Material Variances

Material Variances. Hanson Inc. has the following direct material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630. Pop Quiz.

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Material Variances

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  1. Material Variances Hanson Inc. has the following direct material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week 1,700 pounds of material were purchased and used to make 1,000 Zippies. The material cost a total of $6,630.

  2. Pop Quiz What is the actual price per pound paid for the material? a. $4.00 per pound. b. $4.10 per pound. c. $3.90 per pound. d. $6.63 per pound.

  3. Pop Quiz Hanson’s material price variance (MPV)for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.

  4. Pop Quiz The standard quantity of material thatshould have been used to produce 1,000 Zippies is: a. 1,700 pounds. b. 1,500 pounds. c. 2,550 pounds. d. 2,000 pounds.

  5. Pop Quiz Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.

  6. Price variance$170 favorable Quantity variance$800 unfavorable Material Variances Summary Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price 1,700 lbs. 1,700 lbs. 1,500 lbs. × × × $3.90 per lb. $4.00 per lb. $4.00 per lb. $6,630 $ 6,800 $6,000

  7. The price variance is computed on the entire quantity purchased. • The quantity variance is computed only on the quantity used. Hanson purchased and used 1,700 pounds. How are the variances computed if the amount purchased differs from the amount used? Material Variances

  8. Material Variances Hanson Inc. has the following material standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700 pounds were used to make 1,000 Zippies.

  9. Price variance increases because quantity purchased increases. Price variance$280 favorable Material Variances Actual Quantity Actual Quantity Purchased Purchased × × Actual Price Standard Price 2,800 lbs. 2,800 lbs. × × $3.90 per lb. $4.00 per lb. $10,920 $11,200

  10. Quantity variance is unchanged because actual and standard quantities are unchanged. Quantity variance$800 unfavorable Material Variances Actual Quantity Used Standard Quantity × × Standard Price Standard Price 1,700 lbs. 1,500 lbs. × × $4.00 per lb. $4.00 per lb. $6,800 $6,000

  11. Labor Variances Hanson Inc. has the following direct labor standard to manufacture one Zippy: 1.5 standard hours per Zippy at $10.00 per direct labor hour Last week 1,550 direct labor hours were worked at a total labor cost of $15,810 to make 1,000 Zippies.

  12. Pop Quiz What was Hanson’s actual rate (AR)for labor for the week? a. $10.20 per hour. b. $10.10 per hour. c. $9.90 per hour. d. $9.80 per hour.

  13. Pop Quiz Hanson’s labor rate variance (LRV)for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable.

  14. Pop Quiz The standard hours (SH) of labor thatshould have been worked to produce 1,000 Zippies is: a. 1,550 hours. b. 1,500 hours. c. 1,700 hours. d. 1,800 hours.

  15. Pop Quiz Hanson’s labor efficiency variance (LEV)for the week was: a. $510 unfavorable. b. $510 favorable. c. $500 unfavorable. d. $500 favorable.

  16. Rate variance$310 unfavorable Efficiency variance$500 unfavorable Labor Variances Summary Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate 1,550 hours 1,550 hours 1,500 hours × × ×$10.20 per hour $10.00 per hour $10.00 per hour $15,810 $15,500 $15,000

  17. Pop Quiz Hanson Inc. has the following variable manufacturing overhead standard tomanufacture one Zippy: 1.5 standard hours per Zippy at $3.00 perdirect labor hour Last week 1,550 hours were worked to make 1,000 Zippies, and $5,115 was spent forvariable manufacturing overhead.

  18. Pop Quiz Hanson’s spending variance (VOSV) for variable manufacturing overhead forthe week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable.

  19. Pop Quiz Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable.

  20. Spending variance$465 unfavorable Efficiency variance$150 unfavorable Quick Check  Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate 1,550 hours 1,550 hours 1,500 hours × × × $3.30 per hour $3.00 per hour $3.00 per hour = $5,115 = $4,650 = $4,500

  21. Advantages Advantages of Standard Costs Promotes economy and efficiency Management byexception Enhances responsibilityaccounting Simplifiedbookkeeping

  22. PotentialProblems Potential Problems with Standard Costs Emphasizing standardsmay exclude otherimportant objectives. Favorablevariances maybe misinterpreted. Standard costreports maynot be timely. Emphasis onnegative mayimpact morale.

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