Acme Brick Company uses the following rule to determine whether materials usage variances should be investigated: A materials usage variance will be investigated when the variance is greater than either $5,000 or 10% of the standard cost. During June, the company purchased and used 9,500 pounds of concrete for $5 per pound. It was able to make 20,000 bricks. Its standard quantity of materials allowed is 0.45 pound of concrete per brick at a standard price of $6 per pound. A. Determine Acme's material usage variance and whether it is favorable or unfavorable. B. Should the variance be investigated?
Acme Brick Company uses the following rule to determine whether materials usage variances should be investigated: A materials usage variance will be investigated when the variance is greater than either $5,000 or 10% of the standard cost. During June, the company purchased and used 9,500 pounds of concrete for $5 per pound. It was able to make 20,000 bricks. Its standard quantity of materials allowed is 0.45 pound of concrete per brick at a standard price of $6 per pound. A. Determine Acme's material usage variance and whether it is favorable or unfavorable. B. Should the variance be investigated?
Chapter1: Financial Statements And Business Decisions
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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.
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Acme Brick Company uses the following rule to determine whether materials usage variances should be investigated:
A materials usage variance will be investigated when the variance is greater than either $5,000 or 10% of the standard cost.
During June, the company purchased and used 9,500 pounds of concrete for $5 per pound. It was able to make 20,000 bricks. Its standard quantity of materials allowed is 0.45 pound of concrete per brick at a standard price of $6 per pound.
A. Determine Acme's material usage variance and whether it is favorable or unfavorable.
B. Should the variance be investigated?
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