ID: A Krane Company has a standard costing system and koeps all its costs up to
ID: 2600673 • Letter: I
Question
ID: A Krane Company has a standard costing system and koeps all its costs up to date. The is beach towels which are made in a single department. The standard variable costs are as follows: company's main product for one beach towel (unit) Direct materials (3 yards at $1.00 per yard) Direct labor (1/2 hour at $9.00 per hour) Variable overhead (1/2 hour @ $5.00 per direct labor hour) Standard variable cost per unit $ 3.0 4.5 The company's normal capacity is 10,000 direct labor hours. Its budgcted fixed overhead costs for the year were $24,000. During the year, it produced and sold 22,000 beach towels and it purchased 66,250 yards of direct materials; the purchase cost was $0.99 per yard. Tho avcrage labor rate was $9.10 per hour, and 10,900 direct labor hours were worked. The company's actual variable overhead costs for the year were $55,100, and its fixed costs were $24,500. Using the data given, compute the following using formulas or diagram form: 1. Direct materials cost variances: a. Direct materials price variance b. Direct materials quantity variance c. Total direct materials cost varianceExplanation / Answer
a. Direct material price variance = ( Standard price- actual price ) * actual quantity
= ($1 - $0.99) * 66250 yards
= $662.5 favorable
b. Direct material quantity variance = (standard quantity allowed - actual quantity used ) * Standard price
= ( [22000 towels * 3yards] - 66250 yards) * $1
= ( 66000 - 66250 ) * $1
= $250 unfavorable
c. Total direct material cost variance = Direct material price variance + Direct material quantity variance
= $662.5 - $250
= 412.5 favorable
Note:- Total direct material cost variance = [standard price * standard quantity] - [actual price * actual quantity]
= [$1 * 66000] - [$0.99 * 66250]
= $66000 - $65587.5
= $412.5 favorable