Variances Formulas

Question 1

When is the direct materials purchase-price variance calculated?

Answer 1

At the point of purchase.

Question 2

What is the direct labor rate variance?

Answer 2

The difference between the actual and standard wage rate multiplied by the actual direct labor hours worked.

Question 3

Which department is usually responsible for the direct labor rate variance?

Answer 3

The production department.

Question 4

Why is analyzing variances important in operational performance measurement?

Answer 4

It identifies areas where actual costs deviate from standards, allowing corrective actions to improve efficiency and control.

Question 5

If the actual wage rate is higher than the standard rate, will the direct labor rate variance be favorable or unfavorable?

Answer 5

Unfavorable.

Question 6

If fewer hours are worked at a higher wage rate but total labor cost is lower than expected, how is variance interpreted?

Answer 6

Analyze both the rate variance (unfavorable if wage is higher) and efficiency variance (favorable if fewer hours used).