Standard Product Cost, Direct Materials Variance Condiments Company uses standards to control its materials costs. Assume that a batch of ketchup (2,100 pounds) has the following standards: Standard Quantity Standard Price Whole tomatoes 3,500 lbs. $0.46 per lb. Vinegar 200 gal. 2.80 per gal. Corn syrup 17 gal. 10.20 per gal. Salt 80 lbs. 2.60 per lb. The actual materials in a batch may vary from the standard due to tomato characteristics. Assume that the actual quantities of materials for batch 08-99 were as follows: 3,600 lbs. of tomatoes 192 gal. of vinegar 18 gal. of corn syrup 79 lbs. of salt a. Determine the standard unit materials cost per pound for a standard batch. If required, round amounts to the nearest cent. b. Determine the direct materials quantity variance for batch 08-99. If required, round amounts to the nearest cent. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
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.
Condiments Company uses standards to control its materials costs. Assume that a batch of ketchup (2,100 pounds) has the following standards:
| Standard Quantity | Standard Price | |||
| Whole tomatoes | 3,500 | lbs. | $0.46 | per lb. |
| Vinegar | 200 | gal. | 2.80 | per gal. |
| Corn syrup | 17 | gal. | 10.20 | per gal. |
| Salt | 80 | lbs. | 2.60 | per lb. |
The actual materials in a batch may vary from the standard due to tomato characteristics. Assume that the actual quantities of materials for batch 08-99 were as follows:
| 3,600 lbs. of tomatoes |
| 192 gal. of vinegar |
| 18 gal. of corn syrup |
| 79 lbs. of salt |
a. Determine the standard unit materials cost per pound for a standard batch. If required, round amounts to the nearest cent.
b. Determine the direct materials quantity variance for batch 08-99. If required, round amounts to the nearest cent. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
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