Information on Pruitt Company’s direct-material costs for the month of July was as follows: Actual quantity purchased 30,000 units Actual unit purchase price $2.75 Materials purchase-price variance —unfavorable (based on purchases) $1,500 Standard quantity allowed for actual production 24,000 units Actual quantity used 22,000 units For July there was a favorable direct-materials efficiency variance of
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 on Pruitt Company’s direct-material costs for the month of July was as follows:
Actual quantity purchased 30,000 units
Actual unit purchase price $2.75
Materials purchase-price variance
—unfavorable (based on purchases) $1,500
Standard quantity allowed for actual production 24,000 units
Actual quantity used 22,000 units
For July there was a favorable direct-materials efficiency variance of
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