Bellingham Company produces a product that requires 10 standard pounds per unit. The standard price is $7 per pound. If 4,400 units used 45,800 pounds, which were favorable variance as a negative purchased at $6.79 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance? Enter number using a minus sign and an unfavorable variance as a positive number. a. Direct materials price variance b. Direct materials quantity variance c. Direct materials cost variance
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.
Direct Material price variance = (Actual price per pound - Standard price per pound)*Actual quantity purchased
Direct Material quantity variance = (Actual quantity used - Standard quantity allowed)*Standard rate per pound
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