Maricol Company uses a standard costing system in connection with the manufacture of their product X. Each unit of finished product contains 2 yards of a direct material. However, a 20% direct material spoilage calculated on input quantities occurs during the manufacturing process. The standard cost of the direct material is 3 per yard. For the month, the company purchased 100,000 yards of the direct material for 350,000 and used 90,000 yards to produce 40,000 units of Material X.
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.
Required:
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Compute for the price variance.
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Compute for the efficiency variance
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Compute for the materials variance
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