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Cost Variance Analysis of a Company

Question

Cold Stone Creamery is the producer of specialized ice cream products. The Company uses a standard cost process for determining what its products should cost. The company product engineers develop standards for materials, labor and overhead cost and quantities. Based upon these standards the company then establishes budgets at various production levels. The budgets are then used to evaluate the performance of its managers.

The standard quantities and prices for the products are as follows:              

                                                            Standard         Standard

                                                            Quantity          Price

Direct Material- Ice Cream                 8 oz.                $0.12

Direct Labor                                        0.12 hrs.          9.00

Variable Manufacturing Overhead     0.12 hrs           1.50     Based upon direct labor hours

 

The fixed overhead is applied to units based upon based upon the budgeted monthly fixed overhead cost $9,000 and an expected production of 12,000 units.

 

During the month the company produced 18,000 of product. Summary of actual operating results for the month is as follows:

Actual                                                 Actual

                                                            Quantity          Cost

Direct Material- Ice Cream                 96,600 oz.       $10,626

Direct Labor                                        1,311 hrs.        $12,979

Variable Manufacturing Overhead                             $2,100

Fixed Overhead                                                                             $8,500

Required:

  1. Prepare a variance analysis for direct materials- ice cream.
  2. Prepare a variance analysis for direct labor.
  3. Prepare a variance analysis of variable overhead
  4. Prepare a variance analysis of fixed overhead.

Summary: This question belongs to management accounting and discusses about a company uses a standard cost process for determining what its products should cost and to prepare variance cost analysis reports.

Total word count: 126

 

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