P 12-13: Hurricane Catalyst Hurricane Catalyst produces a variety of specialty chemicals. Hurricane uses a standard costing system. On June 19, it purchased 4,400 pounds of AD98 for $105,380 because it had no inventory of this chemical input. The standard price of AD98 is $23.50 per pound. On July 28, Hurricane produced 1,200 units of a catalyst, ZZ875, using 4,350 pounds of AD98. The standard cost sheet for ZZ875 calls for 3.5 pounds of AD98 for each unit of ZZ875 produced. Required: Compute the following quantities: a. Price variance of AD98. b. Quantity variance of AD98 used in producing ZZ875. c. Dollar amount of AD98 charged to ZZ875's work-in-process inventory on July 28.

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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.