LAB $2-1($LO $2-7)$ Excel: Diagnostic Analytics: Computing Variances and Using Conditional Formatting

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Lab Insight: In managerial accounting, the use of standard costs and the calculation of variances are useful in performance evaluation. Why did the actual materials and labor usage vary from what is expected?

Karina Incorporated manufactures leather jackets using Columbian leather in Cucuta, Colombia. These sell at a premium in export markets. Karina is attempting to reduce its costs to become more profitable. Karina establishes standard costing for both direct materials and direct labor in order to evaluate actual spending by evaluating variances. Karina could hire cheaper labor but wonders if cheaper laborers would waste more material than if Karina used more expensive labor. A performance evaluation of materials and labor variances will allow him to do that.

A favorable cost variance is present when the actual cost is less than the standard cost. An unfavorable cost variance occurs when the actual cost is greater than the standard cost.