Waterway Company uses a standard cost accounting system. In 2022, the company produced 28,000 pounds of direct materials and 1.6 standard hours of direct labor at a standard hourly rate of $12.00. Normal capacity was 49,900 direct labor hours. During the year, 131,400 pounds of raw materials were purchased at $0.93 per pound. All materials purchased were used during the year. (a)
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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