Zee Corporation Has Developed the Following Cost Standards for the Production

question 266

Essay

Zee Corporation has developed the following cost standards for the production of its leather backpacks: Variable overhead at Zee is applied on the basis of direct labor hours. The actual results for last month were as follows: The direct materials purchases variance is computed when the materials are purchased.
Required:
Compute the following variances for Zee.
a. Materials price variance.
b. Materials quantity variance.
c. Labor efficiency variance.
d. Variable overhead rate variance.

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Definitions:

Variable Overhead

The overhead costs that fluctuate with the level of production or business activity, such as utilities or materials consumed in production.

Direct Materials Purchases Variance

The difference between the actual costs of direct materials purchased and the expected (or standard) costs, impacting the budget and potentially financial results.

Variable Overhead Efficiency Variance

A measure used in management accounting to assess the efficiency of variable production overhead based on the actual time taken to produce goods versus the expected time.

Standard Direct Labor-Hours

Standard direct labor-hours refer to the estimated hours of direct labor work required to produce one unit of a product or service, used for budgeting and variance analysis.