Describe a scenario in which there are both highly favorable

Describe a scenario in which there are both highly favorable and highly unfavorable variances. Be sure to include the actual and standard costs in your scenario.

Analyze how and why you, as a manager, would prioritize the variances for analysis and how knowing these variances might help you improve efficiency.

Solution

Heare I am going to analyze the Direct Material Cost Variances Of Style limited As per based on the following information.

Standard Cost Information on Direct Material.

4 unit of direct Material is required to produce one unit of output.The standard price of Direct Material is $5 per unit.

Actual cost information to produce 3000 outputs.

6 Units of direct Material actually used to produce 1 out\\put the actual price is $3 per unit.

Computationiof Direct Material Variences.

Basc Computations.

Total actual units Required = Total output* Actual number of direct Material required per output= 3000*6=18,000

Total Standard Units Required =Total output * standard Number of direct Material required per output

= 3000*4 =12,000

Direct Material price Variance

(Actual price per Unit-Standard price per unit)* the Actual number of units used in production.

($3-$5)*18000 = $36,000 It is a favorable Variance because the actual price per unit is less than the standard price per unit.

Direct Material usage variance

(Actual quantity - Standard quantity to produce actual output)* standard price.

(18,000-12,000)* $5 = $20,000 Unfavorable because Actual quantity required is less than standard quantity.