Inc. produced 1,000 units of the company's product in 2016. The standard quantity of direct materials was three yards of cloth per unit at a standard cost of $ 1.40 per yard. The accounting records showed that 2,400 yards of cloth were used and the company paid $ 1.45 per yard. Standard time was two direct labor hours per unit at a standard rate of $ 9.75 per direct labor hour. Employees worked 1, 900 hours and were paid $ 9.25 per hour.

Requirements 1. What are the benefits of setting cost standards?

2. Calculate the direct materials cost variance and the direct materials efficiency variance as well as the direct labor cost and efficiency variances.

Instructions are listed below

Explanation:

Giving the following information:

Inc. produced 1,000 units of the company's product in 2016. The standard quantity of direct materials was three yards of cloth per unit at a standard cost of $ 1.40 per yard. The accounting records showed that 2,400 yards of cloth were used and the company paid $ 1.45 per yard. Standard time was two direct labor hours per unit at a standard rate of $ 9.75 per direct labor hour. Employees worked 1, 900 hours and were paid $ 9.25 per hour.

1) Standard costs are beneficial because they set a limit on which to perform. It gives a route to follow and an objective to achieve.

2) Direct material price variance = (standard price - actual price) * actual quantity

Direct material price variance = (1.40 - 1.45) * 2,400 = $120 unfavorable

Direct material quantity variance = (standard quantity - actual quantity) * standard price

Direct material quantity variance = (3yards*1000units - 2400) * 1.40 = $840 favorable

Direct labor efficiency variance = (SQ - AQ) * standard rate

Direct labor efficiency variance = (2hours*1000 units - 1,900) * 9.75 = $975 unfavorable

Direct labor price variance = (SR - AR) * AQ

Direct labor price variance = (9.75 - 9.25) * 1900 = $950 favorable