Max Company has developed the following standards for one of its products: Direct materials 15 pounds ´ £16 per pound Direct labour 4 hours ´ £24 per hour Variable overhead 4 hours ´ £14 per hour The following activities occurred during the month of October: Materials purchased 10,000 pounds costing £170,000 Materials used 7,200 pounds Units produced 500 units Direct labour 2,300 hours at £23.60 per hour Actual variable overhead £30,000 The company records materials price variances at the time of purchase. Refer to Figure 17-1. Max's variable standard cost per unit would be
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.
Max Company has developed the following standards for one of its products:
Direct materials 15 pounds ´ £16 per pound
Direct labour 4 hours ´ £24 per hour
Variable
The following activities occurred during the month of October:
Materials purchased 10,000 pounds costing £170,000
Materials used 7,200 pounds
Units produced 500 units
Direct labour 2,300 hours at £23.60 per hour
Actual variable overhead £30,000
The company records materials price variances at the time of purchase.
Refer to Figure 17-1. Max's variable standard cost per unit would be
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