How often should variances be reported to management? Why? What principle may be used with variance reports?Explain.
What is the difference between a favorable cost variance and an unfavorable cost variance. Provide an example of each.
How often should variances be reported to management? Why? What principle may be used with variance reports?Explain.
What is the difference between a favorable cost variance and an unfavorable cost variance. Provide an example of each.
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Direct Materials Variances
The following data relate to the direct materials cost for theproduction of 2,100 automobile tires:
Actual: | 60,300 lbs. at $1.75 | $105,525 |
Standard: | 58,500 lbs. at $1.8 | $105,300 |
a. Determine the direct materials pricevariance, direct materials quantity variance, and total directmaterials cost variance. Enter a favorable variance as a negativenumber using a minus sign and an unfavorable variance as a positivenumber.
Price variance | $ | |
Quantity variance | $ | |
Total direct materials cost variance | $ |
b. The direct materials price variance shouldnormally be reported to the . If lower amounts of direct materialshad been used because of production efficiencies, the variancewould be reported to the . If the favorable use of raw materialshad been caused by the purchase of higher-quality raw materials,the variance should be reported to the .