Clear Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows: Budgeted units of Flex 10 for June 12,000 Budgeted usage of PPS 108,000 pounds Actual number of units of Flex 10 manufactured 9,600 PPS purchased and used 93,600 pounds Total actual cost of PPS used $ 539,136 Direct materials usage variance $ 51,840 unfavorable Clear does not maintain an inventory of materials, so the amount of materials used is equal to the amount of materials purchased. The cost of PPS in the flexible budget for the number of units manufactured this period is:
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.
Clear Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows:
| Budgeted units of Flex 10 for June | 12,000 | |
|---|---|---|
| Budgeted usage of PPS | 108,000 | pounds |
| Actual number of units of Flex 10 manufactured | 9,600 | |
| PPS purchased and used | 93,600 | pounds |
| Total actual cost of PPS used | $ 539,136 | |
| Direct materials usage variance | $ 51,840 | unfavorable |
Clear does not maintain an inventory of materials, so the amount of materials used is equal to the amount of materials purchased. The cost of PPS in the flexible budget for the number of units manufactured this period is:
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