Kilo Company uses a standard costing system that allows 2.0 pounds of direct materials for one finished unit of product. During July, the company purchased 40,000 pounds of direct materials for $210,000, and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Kilo has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase. The direct materials purchase-price variance in July was: Multiple Choice $10,000 unfavorable. $50,000 unfavorable. $80,000 unfavorable. $86,000 unfavorable. $90,000 unfavorable.
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.
Kilo Company uses a
The direct materials purchase-price variance in July was:
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$10,000 unfavorable.
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$50,000 unfavorable.
-
$80,000 unfavorable.
-
$86,000 unfavorable.
-
$90,000 unfavorable.
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