Reference no: EM132543174

Variance Analysis for Decision Making

Bronfenbrenner Co. uses a standard cost system for its single product in which variable overhead is applied on the basis of direct labor hours. The following information is given:

Standard costs per unit:

Raw materials (1.5 grams at $16 per gram) ............................$24.00

Direct labor (0.75 hours at $8 per hour) ..................................$6.00

Variable overhead (0.75 hours at $3 per hour) ........................$2.25

Actual experience for current year:

Units produced ........................................................................22,400 units

Purchases of raw materials (21,000 grams at $17 per gram) ..$357,000

Raw materials used ..................................................................33,400 grams

Direct labor (16,750 hours at $8 per hour) ..............................$134,000

Variable overhead cost incurred ..............................................$48,575

Required:

Question 1: Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase:

a. Direct materials price variance.

b. Direct materials quantity variance.

c. Direct labor rate variance.

d. Direct labor efficiency variance.

e. Variable overhead spending variance.

f. Variable overhead efficiency variance.

g. As a manager, why is variance analysis important?