A company reports the following for one of its products. Direct materials standard (4 pounds @ $2 per pound) $ 8 per unit Actual direct materials used (AQ) 320,000 pounds Actual units produced 63,000 units Actual cost of direct materials used $ 576,000 AQ = Actual Quantity SQ = Standard Quantity AP = Actual Price SP = Standard Price Compute the direct materials price and quantity variances and identify each as favorable or unfavorable.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
A company reports the following for one of its products.
| Direct materials standard (4 pounds @ $2 per pound) | $ 8 | per unit |
|---|---|---|
| Actual direct materials used (AQ) | 320,000 | pounds |
| Actual units produced | 63,000 | units |
| Actual cost of direct materials used | $ 576,000 |
AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price
Compute the direct materials price and quantity variances and identify each as favorable or unfavorable.
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