The Russell Company provides the following standard cost data per unit of product: Direct material (2 gallons @ $3 per gallon) $ 6.00 Direct labor (2 hours @ $12 per hour) $ 24.00 During the period, the company produced and sold 32,000 units incurring the following costs: Direct material 61,000 gallons @ $ 2.90 per gallon Direct labor 59,500 hours @ $ 12.05 per hour The direct material usage variance 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.
The Russell Company provides the following
| Direct material (2 gallons @ $3 per gallon) | $ | 6.00 | |
| Direct labor (2 hours @ $12 per hour) | $ | 24.00 | |
During the period, the company produced and sold 32,000 units incurring the following costs:
| Direct material | 61,000 | gallons | @ | $ | 2.90 | per gallon |
| Direct labor | 59,500 | hours | @ | $ | 12.05 | per hour |
The direct material usage variance was:
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