Will Co. produces chairs. The standard direct material cost to produce one unit of chair is 4 meters of raw materials at P5.00 per meter. During 2020, 8,400 meters of raw materials were purchased at a cost of P20,160. All the purchased materials were actually used to produce 2,000 units of chairs. Assume that Will purchased is 8,500 meters of materials for P20,400 but used only 8,400. Compute the material purchase price variance, quantity variance and prepare journal entries to record the variance, assuming the variance is determined at the earliest possible time.
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.
Will Co. produces chairs. The standard direct material cost to produce one unit of chair is 4 meters of raw materials at P5.00 per meter. During 2020, 8,400 meters of raw materials were purchased at a cost of P20,160. All the purchased materials were actually used to produce 2,000 units of chairs.
Assume that Will purchased is 8,500 meters of materials for P20,400 but used only 8,400. Compute the material purchase price variance, quantity variance and prepare
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