aiiauie 8verhead rate standard Fixed overhead rate standard

aiiauie 8verhead rate standard Fixed overhead rate standard Machine hour standard $6.00 per machine hour $11.00 per machine hour 4 hours per unit LO 2 Analyzing Cost Variances SE4, ACCOUNTING CONNECTION Dancing Waters produces fountains. The company analyzes only variances that differ by more than 5 percent from the st controller computed the following direct labor efficiency variances for May: andard cost. The Direct Labor Efficiency Variance $1,200 (U) 3,200 (F) 2,000 (U) 1,600 (F) 2,800 (U) Standard Direct Product 4 Product 6 Product 7 Product 9 Product 12 Labor Cost $24,000 42,800 42,000 34,000 50,000 For each product, determine the variance as a percentage of the standard cost (round to one decimal place). Then identify the products for which variances should be analyzed and suggest possible causes for the variances. Direct Materials Variances 03 roduces nlacemats, Each placemat calls for 0.2 meters of

Solution

Since, the company analyzes only those variance that differ by more than 5% from the standard cost, hence only product 6 and product 12 should be analyzed as variance is more than 5% in their cases.

Causes of favorable direct labor efficiency variance

- Hiring of more skilled labor

- Training of work force in improved production techniques

- Use of better quality raw material which is easy to handle

Causes of adverse direct labor efficiency variance

- Hiring of less skilled labor

- Lower staff morale and motivation

- Disruption of activities

Product	Direct labor efficiency variance	Standard direct labor cost	Variance as a % of standard cost
Product 4	$1,200 (U)	$24,000	1,200/24,000 = 5%
Product 6	$3,200 (F)	$42,800	3,200/42,800 = 7.5%
Product 7	$2,000 (U)	$42,000	2,000/42,000 = 4.8%
Product 9	$1,600 (F)	$34,000	1,600/34,000 = 4.7%
Product 12	$2,800 (U)	$50,000	2,800/50,000 = 5.6%