The Alpha Company produces toys for national distribution. Standards for a particular toy are: Materials: 12 ounces per unit at 56¢ per ounce. Labor: 2 hours per unit at P2.75 per hour. During the month of December, the company produced 1,000 units. Information for the month follows: Materials: 14,000 ounces were purchased and used at a total cost of P7,140. Labor: 2,500 hours worked at a total cost of P8,000
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.
In a detailed solution, compute for:
1. materials price variance
2. labor rate variance
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