Ronald Company Has a Standard Costing System and Keeps All

question 78

Essay

Ronald Company has a standard costing system and keeps all its costs up to date. The company specializes in producing herbal medicines. The standard variable costs for producing 1 liter herbal oil are as follows:

The company's normal capacity is 15,000 direct labor hours. Its budgeted fixed overhead costs for the year were $27,000. During the year, it produced and sold 22,000 liters and it purchased 51,250 units of direct materials; the purchase cost was $1.50 per unit. The average labor rate was $4.90 per hour, and 15,500 direct labor hours were worked. The company's actual variable overhead costs for the year were $50,100, and its fixed costs were $25,500.
Using the data given, compute the following using formulas or diagram form:
1. Direct materials cost variances:
a. Direct materials price variance
b. Direct materials quantity variance
c. Total direct materials cost variance

2. Direct labor cost variances:
a. Direct labor rate variance
b. Direct labor efficiency variance
c. Total direct labor cost variance

3. Variable overhead variances:
a. Variable overhead spending variance
b. Variable overhead efficiency variance
c. Total variable overhead variance

4. Fixed overhead variances:
a. Fixed overhead budget variance
b. Fixed overhead volume variance
c. Total fixed overhead variance

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Definitions:

Linkage

The connection or relationship between two or more factors, objects, or systems.

Period Costs

Expenses that are not directly tied to the production of goods and are expensed in the period they are incurred.

Individual Sales

Individual Sales refer to transactions and revenue generated from selling products or services on a per-unit or single-transaction basis.

Matching Principle

An accounting principle that requires expenses to be matched with the revenues they help to generate in the same accounting period.