Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 6.5
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.
Majer Corporation makes a product with the following
| Standard Quantity or Hours | Standard Price or Rate | Standard Cost Per Unit | |||
|---|---|---|---|---|---|
| Direct materials | 6.5 | ounces | $ 2.00 | per ounce | $ 13.00 |
| Direct labor | 0.8 | hours | $ 18.00 | per hour | $ 14.40 |
| Variable overhead | 0.8 | hours | $ 2.00 | per hour | $ 1.60 |
The company reported the following results concerning this product in February.
| Originally budgeted output | 4,600 | units |
|---|---|---|
| Actual output | 5,300 | units |
| Raw materials used in production | 30,500 | ounces |
| Actual direct labor-hours | 2,110 | hours |
| Purchases of raw materials | 34,400 | ounces |
| Actual price of raw materials | $ 97.10 | per ounce |
| Actual direct labor rate | $ 87.60 | per hour |
| Actual variable overhead rate | $ 6.10 | per hour |
The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
The variable overhead efficiency variance for February is:
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