The following data relate to the direct materials cost for the production of 50,000 automobile tires: Actual: 725,000 lbs. at $3.00 per lb. Standard: 730,000 lbs. at $2.95 per lb. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. To whom should the variances be reported for analysis and control?
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 following data relate to the direct materials cost for the production of 50,000 automobile tires:
| Actual: | 725,000 lbs. at $3.00 per lb. |
| Standard: | 730,000 lbs. at $2.95 per lb. |
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Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance.
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To whom should the variances be reported for analysis and control?
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