The following standards have been established for a raw material used to make product O84: Standard quantity of the material per unit of output 7.7 meters Standard price of the material $ 18.50 per meter The following data pertain to a recent month's operations: Actual material purchased 4,000 meters Actual cost of material purchased $ 77,600 Actual material used in production 3,700 meters Actual output 560 units of product O84 The direct materials purchases variance is computed when the materials are purchased. Required: a. What is the materials price variance for the month? b. What is the materials quantity variance for the month?
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 following standards have been established for a raw material used to make product O84:
| Standard quantity of the material per unit of output | 7.7 | meters |
|---|---|---|
| Standard price of the material | $ 18.50 | per meter |
The following data pertain to a recent month's operations:
| Actual material purchased | 4,000 | meters |
|---|---|---|
| Actual cost of material purchased | $ 77,600 | |
| Actual material used in production | 3,700 | meters |
| Actual output | 560 | units of product O84 |
The direct materials purchases variance is computed when the materials are purchased.
Required:
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?
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