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A В C D E 1 Barzilla Recycling manufactures giftbags out of recycled materials 2 Actual materials purchases 480,000 pounds @

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Variance analysis is a technical jargon to explain a situation where actual result differs from planned
or expected results. It is an act of comparing standards with actual. The study of variances help in
decision making and finding out the major areas which needs immediate attention.
Barzilla Recycling
Variances
MPV = ( SP - AP ) * AQ purchased
MPV = ( 1.58 - 1.6 ) * 480000 = $ 9600 ( unfavourable )
MQV = ( SQ - AQ ) SP
MQV = ( 100000 * 4 - 420000 ) * 1.58 = $ 31600 ( unfavourable )
Total Material Variance = MPV + MQV
9600 + 31600 = $ 41200 ( unfav. )
LRV = ( SR - AR ) AH
LRV = ( 32 - 32.6 ) 26000 = $ 15600 ( UnFavourable) ( AR = 847600 / 26000 )
LEV = ( SH - AH ) SR
LEV = ( 100000 * 0.25 - 26000 ) 32 = $ 32000 ( unfavourable)
Total labour Variance = LRV + LEV
15600 + 32000 = 47600 ( unfav.)
Journal entries
Raw materials 758400
Direct material price variance (U) 9600
Accounts payable ( 480000 * 1.6) 768000
WIP 726800
Direct materials quantity variance 31600
Raw materials 758400
WIP 800000
DLRV 15600
DLEV 32000
Wages payable 847600
COGS 88800
Direct materials quantity variance 31600
Direct material price variance (U) 9600
DLRV 15600
DLEV 32000
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