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Standards and Budgets, and Direct Labor Variance Matrix

1. Explain the similarities and differences between standards and budgets. Contrast the accounting for standards and budgets.

2. In the direct labor variance matrix, there are three factors: (1) Actual hours Actual rate, (2) Actual hours Standard rate, and (3) Standard hours Standard rate. Using the numbers, indicate the formulas for wach of the direct labor variances.

3. The following direct materials and direct labor data pertain to the operations of Batista manufacturing Company for the month of August.

Cost Quantities
Actual Labor $13 per hour Actual hours incurred and used 4,250 hours

Actual materials price $128 per ton Actual quantity of materials purchased and used 1,250 tons

Standard Labor rate $12 per hour Standard hours used 4,300 hours

Standard materials price $130 per ton Standard quantity of materials used 1,200 tons

Compute the total, price, and quantity variances for materials and labor. Provide two possible explanations for each of the unfavorable variances calculated above, and suggest where responsibility for the unfavorable result might be placed.

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Solution Preview

1. Standard costing involves development of product or service cost using estimates of both the resources consumed and the prices of those resources. Then standard cost will be increased by adding profit to arrive at the standard selling price. These standards provide the basis for planning and control.

A Standard is set for material per unit of output,price of material, usage of materials, number of hours required for per unit of output ,labour rate per hour and also variable overhead and fixed overhead standards are also set for the prescribed volume of output. Therefore,standard costs are arrived by establishing relation between input and output.

On the other hand, budgets are estimates of income and expenditure of a business or part of business over a time period. Budgets are used in planning. Budgets help in efficient use of resources. It helps in monitoring the cash flow and also ...

Solution Summary

This is a tutorial guide on questions comparing standards and budgets, explaining the direct labor variance mix, and discussing unfavorable variances.