Information concerning Johnston Company's direct materials costs is as follows: Standard price per pound $ 6.75 Actual quantity purchased 2,960 pounds Actual quantity used in production 2,860 pounds Units of product manufactured 730 Materials purchase-price variance–favorable $ 885 Budget data for the period: Units to manufacture 1,030 Units of direct materials 4,120 pounds The actual purchase price per pound of direct materials was: Multiple Choice $7.43. $6.45. $6.42. $7.05. $6.80.
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.
Information concerning Johnston Company's direct materials costs is as follows:
| Standard price per pound | $ 6.75 | |
|---|---|---|
| Actual quantity purchased | 2,960 | pounds |
| Actual quantity used in production | 2,860 | pounds |
| Units of product manufactured | 730 | |
| Materials purchase-price variance–favorable | $ 885 | |
| Budget data for the period: | ||
| Units to manufacture | 1,030 | |
| Units of direct materials | 4,120 | pounds |
The actual purchase price per pound of direct materials was:
-
$7.43.
-
$6.45.
-
$6.42.
-
$7.05.
-
$6.80.
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