The standard cost of a gallon of paint manufactured by Through-the-Letters, Inc. includes 4 pounds of direct materials at $5.00 per pound. During February, 80,000 pounds of direct materials are purchased at a cost of $4.80 per pound, and 74,000 pounds of direct materials are used to produce 19,000 gallons of paint. Instructions (a) Compute the materials price and quantity variances, and indicate whether the variance is favorable or unfavorable. (b) Journalize the purchase of the materials and the issuance of the materials, assuming a standard cost system is used.
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.
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standard cost of a gallon of paint manufactured by Through-the-Letters, Inc. includes 4 pounds of direct materials at $5.00 per pound. During February, 80,000 pounds of direct materials are purchased at a cost of $4.80 per pound, and 74,000 pounds of direct materials are used to produce 19,000 gallons of paint.
Instructions
(a) Compute the materials price and quantity variances, and indicate whether the variance is favorable or unfavorable.
(b) Journalize the purchase of the materials and the issuance of the materials, assuming a standard cost system is used.
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