ompute the direct materials cost variance using the 2-way method Shepherd Corporation has the following information given below: Direct materials : 5 lbs @ P5.00 Direct labor : 4 hrs @ P9.00 Variable overhead : 4 hrs. @ P3.00 Fixed overhead: 4 hrs. @ P4.00 The company has a normal capacity of 150,000 units and a budgeted capacity of 140,000 units. Actual data taken from the production records in the month of November, 2020 are as follows: Actual production 135,000 units Materials purchases (600,000 x P4.15) P2,490,000 Materials used 550,000 lbs. Payroll incurred (400,000 x P9.00) 3,600,000 Factory overhead: Fixed P1,500,000
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.
Compute the direct materials cost variance using the 2-way method
Shepherd Corporation has the following information given below:
Direct materials : 5 lbs @ P5.00
Direct labor : 4 hrs @ P9.00
Variable overhead : 4 hrs. @ P3.00
Fixed overhead: 4 hrs. @ P4.00
The company has a normal capacity of 150,000 units and a budgeted capacity of 140,000 units. Actual data taken from the production records in the month of November, 2020 are as follows:
Actual production 135,000 units
Materials purchases (600,000 x P4.15) P2,490,000
Materials used 550,000 lbs.
Payroll incurred (400,000 x P9.00) 3,600,000
Factory overhead: Fixed P1,500,000
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