Skip Company produces a product called Lem. The standard direct material cost to produce one unit of Lem is four quarts of raw material at $2.50 per quart. During May, 9,240 quarts of raw material were purchased at a cost of $22,176. All the purchased material was
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.
DM variances;
Skip Company produces a product called Lem. The standard direct material cost to produce one unit of Lem is four quarts of raw material at $2.50 per quart. During May, 9,240 quarts of raw material were purchased at a cost of $22,176. All the purchased material was used to produce 2,200 units of Lem.
a. Compute the material price variance and material quantity variance for May.
Note: Do not use a negative sign with your answers.
| Material price variance | Answer | AnswerFavorableUnfavorableNeither favorable or unfavorable |
| Material quantity variance | Answer | AnswerFavorableUnfavorableNeither favorable or unfavorable |
b. Assume the same facts except that Skip Company purchased 13,200 quarts of material at the previously calculated cost per quart, but used only 9,240 quarts. Compute the material price variance and material quantity variance for May, assuming that Skip identifies variances at the earliest possible time.
Note: Do not use a negative sign with your answers.
| Material price variance | Answer | AnswerFavorableUnfavorableNeither favorable or unfavorable |
| Material quantity variance | Answer | AnswerFavorableUnfavorableNeither favorable or unfavorable |
c. Prepare the journal entries to record the material price and usage variances calculated in (b).
Note: List any multiple debits or any multiple credits in alphabetical order by account name.
| Account | Debit | Credit |
|---|---|---|
| AnswerAccounts PayableCost of Good SoldLabor Efficiency VarianceLabor Rate VarianceMaterial Price VarianceMaterial Quantity VarianceOH Spending VarianceRaw Material InventoryVOH Efficiency VarianceVolume VarianceWages PayableWork in Process Inventory | Answer | Answer |
| AnswerAccounts PayableCost of Good SoldLabor Efficiency VarianceLabor Rate VarianceMaterial Price VarianceMaterial Quantity VarianceOH Spending VarianceRaw Material InventoryVOH Efficiency VarianceVolume VarianceWages PayableWork in Process Inventory | Answer | Answer |
| AnswerAccounts PayableCost of Good SoldLabor Efficiency VarianceLabor Rate VarianceMaterial Price VarianceMaterial Quantity VarianceOH Spending VarianceRaw Material InventoryVOH Efficiency VarianceVolume VarianceWages PayableWork in Process Inventory | Answer | Answer |
| To record material price variance | ||
| AnswerAccounts PayableCost of Good SoldLabor Efficiency VarianceLabor Rate VarianceMaterial Price VarianceMaterial Quantity VarianceOH Spending VarianceRaw Material InventoryVOH Efficiency VarianceVolume VarianceWages PayableWork in Process Inventory | Answer | Answer |
| AnswerAccounts PayableCost of Good SoldLabor Efficiency VarianceLabor Rate VarianceMaterial Price VarianceMaterial Quantity VarianceOH Spending VarianceRaw Material InventoryVOH Efficiency VarianceVolume VarianceWages PayableWork in Process Inventory | Answer | Answer |
| AnswerAccounts PayableCost of Good SoldLabor Efficiency VarianceLabor Rate VarianceMaterial Price VarianceMaterial Quantity VarianceOH Spending VarianceRaw Material InventoryVOH Efficiency VarianceVolume VarianceWages PayableWork in Process Inventory | Answer | Answer |
| To record material quantity variance |
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