The Claus Company uses standard costing for the single product the company makes and sells. The following data are for the month of December: Actual cost of direct material purchased and used, P62,400; Material price variance, P4,800 unfavorable; Total materials variance, P14,400 unfavorable; Standard cost per pound of material, P6; Standard cost per direct labor hour, P8; Actual direct labor hours, 3,800 hours; Labor efficiency variance, P1,600 favorable; Standard number of direct labor hour per unit of product, 2; Total labor variance, P680 unfavorable. The total number of units produced during the month was: 8,000 12,000 2,000 3,800 The labor rate variance was: 2,280 favorable 2,280 unfavorable 920 favorable 920 unfavorable
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 Claus Company uses
The total number of units produced during the month was:
- 8,000
- 12,000
- 2,000
- 3,800
The labor rate variance was:
- 2,280 favorable
- 2,280 unfavorable
- 920 favorable
- 920 unfavorable
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