The variances to be calculated are as follows:
-
Direct Materials Price Variance: This variance compares the actual price paid for materials against the standard price. To calculate, we subtract the standard cost per pound of direct materials from the actual cost per pound.
-
Direct Materials Quantity Variance: This variance assesses the efficiency in using materials. It's calculated by comparing the standard quantity of material allowed for production against the actual quantity used.
-
Direct Labor Efficiency Variance: This is the difference between the standard labor rate and the actual labor cost per hour.
-
Direct Labor Rate Variance: This variance compares the standard labor rate with the actual labor rate per hour.
-
Variable Overhead Spending Variance: This is the difference between the standard variable overhead cost and the actual variable overhead cost.
-
Fixed Overhead Spending Variance: As fixed overhead is not volume-sensitive, this variance compares the budgeted fixed overhead cost for the planned production level (1,000 widgets) with the actual amount spent.
Let's compute these variances to understand the performance gaps.
Please note that a favorable variance means the actual cost was lower than the standard or budgeted cost, while an unfavorable variance indicates the opposite, i.e., the actual cost exceeded the standard or budgeted cost.
Please provide the calculations for each variance to proceed with the analysis.
