ABC Industries uses a cost system that carries direct materials inventory at a standard cost. The controller has established these standards for the cost of one basket (unit): ABC Industries made 3,000 baskets in July and used 15,500 pounds of material to make these units. ABC Industries paid $39,370 for the 15,500 pounds of material. What was the direct materials price variance for July? What was the direct materials quantity variance for July? What is the total direct materials cost variance? Standard Quantity x Standard price = standard cost direct materials 5 pounds $2.60 per pound $18.00 Direct labor 1.25 hours $12.00 per hour $15.00 total prime cost $33.00
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.
ABC Industries uses a cost system that carries direct materials inventory at a
ABC Industries made 3,000 baskets in July and used 15,500 pounds of material to make these units. ABC Industries paid $39,370 for the 15,500 pounds of material.
- What was the direct materials price variance for July?
- What was the direct materials quantity variance for July?
- What is the total direct materials cost variance?
Standard Quantity x Standard price = standard cost direct materials 5 pounds $2.60 per pound $18.00 Direct labor 1.25 hours $12.00 per hour $15.00 total prime cost $33.00
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