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When computing standard cost variances the difference between actual and standard price multiplied by actual quantity yields what?
Price Variance
Why are variances generally segregated in terms of a price variance and a quantity variance?
Variances are segregated into price variance and quantity variance to provide clearer insights into the factors affecting cost performance. Price variance measures the impact of changes in the price of inputs, while quantity variance assesses the effect of differences in the amount of inputs used. This separation allows managers to pinpoint specific areas for improvement, enabling more targeted decision-making and corrective actions. By analyzing these variances independently, organizations can better understand their operational efficiency and cost control.
Why are separate price and quantity variances computed?
Price and quantity variances are computed respectively because different managers are usually responsible for buying and for using inputs.
Are standards designed to evaluate price and quantity variances separately?
True
Why material price variance extracted at time of purchase?
Material price variance is calculated at the time of purchase to assess the difference between the actual cost of materials and the standard cost set by the organization. This variance helps in identifying discrepancies in pricing and allows for timely adjustments in budgeting and forecasting. Analyzing price variances at the point of purchase also aids in evaluating supplier performance and making informed procurement decisions. By monitoring these variances, companies can manage costs more effectively and improve overall financial performance.
What are the uses of a direct labor budget?
Direct labor budget utilized to compare the actual direct labor cost and standard cost for specific task and for controlling purpose so that if there are variances those variances could be eliminated to bring the actual cost to budgeted cost.
Why are variances generally segregated in terms of a price variance and an efficiency variance?
Efficiency Varian materials and direct labor, the variances were recorded in specific general ledger accounts.
How do you calculate material price variances and what are the possible reasons for such variances?
Following are the causes of material price variance: 1.There could have been recent changes in purchase price of materials. 2.Price variance can be due to substituting raw materials different from the original material specification. 3.Price variance can be attributed to the non availability of cash discounts which was originally anticipated at the time of setting the price standards. 4.Changes in transportation costs and storekeeping costs can also be contributing factors to material price variance.
What does activity-level variances plus flexible-budget variances equal?
total master-budget variances
Which department is often responsible for the direct materials price variance?
Receiving can affect direct materials price variances if there is no inventory. The accounting department will mark up prices to reflect a shortage.
What are the causes of a favourable raw material price variances?
Favorable raw material price variances occur when the actual costs of raw materials are lower than the budgeted or standard costs. This can be caused by factors such as a decrease in market prices due to increased supply or reduced demand, successful negotiation of better purchasing agreements, or improved production efficiencies that minimize waste. Additionally, bulk purchasing or long-term contracts at lower rates can also contribute to these favorable variances.
What are the two variances between the actual cost and the standard cost for direct labor?
The two variances between the actual cost and the standard cost for direct labor are the labor rate variance and the labor efficiency variance. The labor rate variance measures the difference between the actual hourly wage paid and the standard wage expected, multiplied by the actual hours worked. The labor efficiency variance assesses the difference between the actual hours worked and the standard hours allowed for the actual production, valued at the standard hourly rate. These variances help businesses analyze their labor costs and operational efficiency.
