Botella Company produces plastic bottles. The unit for costing purposes is a case of 18 bottles.The following standards for producing one case of bottles have been established:Direct materials (4 lbs. @ $0.95) $ 3.80Direct labor (1.25 hrs. @ $15.00) 18.75Standard prime cost $22.55 During December, 78,000 pounds of materials were purchased and used in production. Therewere 15,000 cases produced, with the following actual prime costs:Direct materials $74,000Direct labor $315,000 (for 22,500 hrs.)Required:1. Compute the materials variances.2. Compute the labor variances.3. CONCEPTUAL CONNECTION What are the advantages and disadvantages that canresult from the use of a standard costing system?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Botella Company produces plastic bottles. The unit for costing purposes is a case of 18 bottles.
The following standards for producing one case of bottles have been established:
Direct materials (4 lbs. @ $0.95) $ 3.80
Direct labor (1.25 hrs. @ $15.00) 18.75
Standard prime cost $22.55
During December, 78,000 pounds of materials were purchased and used in production. There
were 15,000 cases produced, with the following actual prime costs:
Direct materials $74,000
Direct labor $315,000 (for 22,500 hrs.)
Required:
1. Compute the materials variances.
2. Compute the labor variances.
3. CONCEPTUAL CONNECTION What are the advantages and disadvantages that can
result from the use of a
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