Variance analysis

In developing a standard cost for direct materials, a price factor and a quantity factor must be considered.

• true
• false

A variance is the difference between actual costs and standard costs.

• true
• false

If actual costs are less than standard costs, the variance is favourable.

• true

• false

A total direct materials variance is analyzed in terms of

• price and usage variances.

• buy and sell variances.

• quantity and quality variances.

• tight and loose variances.

The formula for the direct materials price variance is:

AP=actual price

SP= standard price

SQ=standard quantity

• (AP × SQ) – (SP × SQ)

• (AP × AQ) – (SP × AQ)

• (AP × AQ) – (SP × SQ)

• (AP × SQ) – (AP × SQ)

Answer explanation

Be little creative

The investigation of direct materials price variance usually begins in the

• first production department
• purchasing department
• controller's office.
• accounts payable department.

The formula for the labour rate variance is:

AR=Actual Hours

SR=Standard Rate

• LRV=LRV + LEV

• LRV=(AR x AH)-(SR x AH)

• LRV=(AR x SR)-(SR x AH)

The fixed overhead variance is divided into two component:-

a- FOH (Expenditure) Variance

b. FOH (Volume) variance

• True

• False