Question #1
Evaluate the following statements concerning variance analysis. Be sure to provide specific examples to justify your evaluations.
a) When evaluating variances, it is best for managers and others to consider one variance at a time rather than groups of variances together.
b) "Favorable" variances represent good performance and "unfavorable" variances represent bad performance.
Question #2
Expected production (units) 25,000
Standard DML hours per unit 7
Standard DML rate per hour $25
Standard pounds of DM usage per unit 5
Standard DM price per pound $12
Actual
Units produced 26,000
DML hours worked 176,800
Total cost of DML $4,508,400
Pounds of DM purchased 150,000
Total cost of DM purchased $1,725,000
Pounds of DM used 143,000
a) Calculate the following variances:
Direct manufacturing labor rate variance
Direct manufacturing labor usage variance
Direct materials price variance
Direct materials usage variance
b) Explain what each of the calculated variances imply about the firm's operations. Be specific!
Direct manufacturing labor rate variance
Direct manufacturing labor usage variance
Direct materials price variance
Direct materials usage variance