Variance Analysis Problem Avatar, Inc. has prepared the following standard cost sheet for one unit of the product. Direct materials (5 pounds at $3 per pound) $15.00 Direct labor (2 hours at $13.00 per hour) $26.00 During the month of November, the company manufactures 450 units and incurs the following actual costs. Direct materials purchased and used (2,000 pounds) $8,000 Direct labor (1,000 hours) $12,000 1. Compute the total, price, and quantity variances for materials and labor. Direct Material Variances (AQ x AP) (SQ x SP) Total Favorable or Unfavorable %3D Total Direct Material Variance $8,000 %3D (AQ x AP) (AQ x SP) Total Favorable or Unfavorable %3D Direct Material Price Variance %3D (AQ x SP) (SQ x SP) Total Favorable or Unfavorable %3D Direct Material Quantity Variance Direct Labor Variances (AH x AR) (SH x SR) Total Favorable or Unfavorable %3D Total Direct Labor Variance %3D (AH x AR) (AH x SR) Total Favorable or Unfavorable %3D Direct Labor Price (Rate) Variance (AH x SR) (SH x SR) Total Favorable or Unfavorable %3D Direct Labor Quantity Variance

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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.