Hart Company made 3,000 bookshelves using 22,000 board feet of wood costing $266,200. The company’s direct materials standards for one bookshelf are 8 board feet of wood at $12 per board foot. 1. Compute the direct materials price and quantity variances and classify each as favorable or unfavorable. 2. Hart applies management by exception by investigating direct materials variances of more than 5% of actual direct materials costs. Which direct materials variances will Hart investigate further?
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.
Hart Company made 3,000 bookshelves using 22,000 board feet of wood costing $266,200. The company’s
direct materials standards for one bookshelf are 8 board feet of wood at $12 per board foot.
1. Compute the direct materials price and quantity variances and classify each as favorable or
unfavorable.
2. Hart applies management by exception by investigating direct materials variances of more than 5% of
actual direct materials costs. Which direct materials variances will Hart investigate further?
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