Handerson Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Direct materials 8.5 kilos $ 6.00 per kilo Direct labor 0.4 hours $ 20.00 per hour Variable overhead 0.4 hours $ 6.00 per hour The company reported the following results concerning this product in August. Actual output 3,200 units Raw materials used in production 29,030 kilos Purchases of raw materials 31,600 kilos Actual direct labor-hours 1,160 hours Actual cost of raw materials purchases $ 195,920 Actual direct labor cost $ 22,736 Actual variable overhead cost $ 7,540 The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The materials price variance for August is: Multiple Choice $5,440 F $6,320 F $5,440 U $6,320 U
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.
Handerson Corporation makes a product with the following standard costs:
| Standard Quantity or Hours | Standard Price or Rate | |||||
| Direct materials | 8.5 | kilos | $ | 6.00 | per kilo | |
| Direct labor | 0.4 | hours | $ | 20.00 | per hour | |
| Variable |
0.4 | hours | $ | 6.00 | per hour | |
The company reported the following results concerning this product in August.
| Actual output | 3,200 | units | |
| Raw materials used in production | 29,030 | kilos | |
| Purchases of raw materials | 31,600 | kilos | |
| Actual direct labor-hours | 1,160 | hours | |
| Actual cost of raw materials purchases | $ | 195,920 | |
| Actual direct labor cost | $ | 22,736 | |
| Actual variable overhead cost | $ | 7,540 | |
The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
The materials price variance for August is:
Multiple Choice
-
$5,440 F
-
$6,320 F
-
$5,440 U
-
$6,320 U
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