In: Accounting
Whistler Company determined that in the production of their products last period; they had a favorable price variance and an unfavorable quantity variance for direct
materials. What might be the cause of this pattern of variances?
* Price Variance occurs due the difference between standard price and actual price.
* Quantity Variance occurs due to the difference between standard quantity allowed and actual quantity used.
--Price Variance are Favourable for Whistler Company means that the actual price paid (for material or labor) is LESS than the Standard Price budgeted by the amount. Favourable Price Variance occurs when Actual Price is Less than the Standard Price.
--Quantity Variance are Unfavourable for Whistler Company means that the actual quantity of material used is MORE than the Standard quantity allowed for actual output. Unfavourable Quantity Variance occurs when Actual Quantity used is MORE than Standard quantity allowed.
--Hence,
>Price Variance is favourable because Actual price is less than
Standard Price
>Quantity Variance is Unfavourable, because Actual quantity of
material used is MORE than Standard quantity of material
allowed.