The standard direct material cost per unit for a product is calculated as follows: 10.5 liters at $2.50 per liter. Last month the actual price paid for 12,000 liters of material used was 4% above standard and the direct material usage variance was $1,815 favorable. No inventory of material is held. Requirements 1- What was the unfavorable direct material price variance for last month? 2- What was the actual production last month (in units)?
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 standard direct material cost per unit for a product is calculated as follows: 10.5 liters at $2.50 per liter. Last month the actual price paid for 12,000 liters of material used was 4% above standard and the direct material usage variance was $1,815 favorable. No inventory of material is held.
Requirements
1- What was the unfavorable direct material price variance for last month?
2- What was the actual production last month (in units)?
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