The Bowden Corporation makes a single product. Only one kind of direct material is used to make this product. The company uses a standard cost system. The company's cost records for June show the following data: Number of units produced 10,000 Material price variance $8,400 Favorable Material quantity variance $8,000 Unfavorable Actual direct material purchased and used 21,000
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.
The Bowden Corporation makes a single product. Only one kind of direct material is used to make this product. The company uses a standard cost system. The company's cost records for June show the following data:
| Number of units produced | 10,000 | |
|---|---|---|
| Material price variance | $8,400 | Favorable |
| Material quantity variance | $8,000 | Unfavorable |
| Actual direct material purchased and used | 21,000 | pounds |
| Direct materials standard price | $8 | per pound |
There were no beginning inventories of direct materials.
The actual cost of direct material was:
-
$8.12 per pound
-
$8.00 per pound
-
$7.60 per pound
-
$7.42 per pound
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