Princess Company uses standard costs (a budget) to control materials costs. The budget calls for 3 pounds of materials for each finished unit produced. The standard (budgeted) cost per pound of materials is $2.00. During May, 5,000 finished units were manufactured, and 10,000 pounds of materials were used. The price paid for materials was $2.25 per pound. There was no beginning or ending materials inventories. Required: How much of the difference between budgeted profit and actual profit was related to the price paid for the purchase of materials?
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.
Princess Company uses
Required: How much of the difference between budgeted profit and actual profit was related to the price paid for the purchase of materials?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
