Variance analysis Asahi USA, Inc., based in Denver, Colorado, is a subsidiary of a Japanese company manufacturing specialty tools. Asahi USA employs a standard cost system. Following are the standards per unit of one of its products, tool KJ79. This tool requires a special chrome steel as a direct material.
|
|
STANDARD QUANTITY |
STANDARD PRICE |
STANDARD COST |
|
Direct materials |
8 pounds |
$18 per pound |
$144 |
|
Direct labor |
2.5 hours |
$8 per hour |
20 |
|
|
|
|
$164 |
During November, Asahi USA started and completed job KJX86 to manufacture 1,900 units of tool KJ79. It purchased and used 14,250 pounds of the special chrome steel for tool KJ79 at a total cost of $270,750. The total direct labor charged to job KJX86 was $37,800. Job KJX86 required 5,000 direct labor hours.
Required
(a) For job KJX86, compute the following and indicate whether the variances are favorable or unfavorable:
(1) Direct material price variance
(2) Direct material quantity variance
(3) Direct labor rate variance
(4) Direct labor efficiency variance.
(b) Provide a plausible explanation for the variances.