OBJECTIVE: To use variance analysis to benchmark when evaluating performance and to further control organizational output, efficiency, and sustainability.

REQUIREMENT: Standard Costing & Variance Analysis

Question

ABC Company is a manufacturer of the leather belt based in Kallang, Singapore. The company estimated a total of 400 units of production for the most recent period. The standard costs per unit are given below:

Leather Belt	Standard cost per unit (SGD)
Direct material (2m at SGD 1.50 per meter) Direct labor (1.5 hours at SGD 6 per hour) Variable production overhead (1.5 hours at SGD 3.40)	3.00 9.00 5.10
	17.10

The budgeted and actual units produced for this period were 400 units. The following is the actual costs incurred per unit.

Leather Belt	Actual cost per unit (SGD)
Direct material (2.1m at SGD 1.60 per meter) Direct labor (1.4 hours at SGD 6.50 per hour) Variable production overhead (1.4hours at SGD 3.10)	3.36 9.10 4.34
	16.80

Required:

From the foregoing information, compute the following variances and indicate whether they are favorable (F) or unfavorable (U). State why each of the variances occurred.

1. Material price variance
2. Material usage variance
3. Direct labor rate variance
4. Direct labor efficiency variance
5. Variable overhead spending variance
6. Variable overhead efficiency variance