Prepare a direct materials purchases budget for Safety Grip Company for the year ended December 31, 20Y9.
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.
Direct Materials Purchases Budget
Anticipated sales for Safety Grip Company were 47,000 passenger car tires and 14,000 truck tires. Rubber and steel belts are used in producing passenger car and truck tires as follows:
| Passenger Car | Truck | |
| Rubber | 28 lbs. per unit | 65 lbs. per unit |
| Steel belts | 4 lbs. per unit | 10 lbs. per unit |
The purchase prices of rubber and steel are $3.60 and $4.70 per pound, respectively. The desired ending inventories of rubber and steel belts are 44,000 and 9,000 pounds, respectively. The estimated beginning inventories for rubber and steel belts are 52,000 and 7,000 pounds, respectively.
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