In: Accounting
Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 3,000 helmets, using 1,890 kilograms of plastic. The plastic cost the company $14,364. According to the standard cost card, each helmet should require 0.53 kilograms of plastic, at a cost of $8.00 per kilogram. Required: 1. According to the standards, what cost for plastic should have been incurred to make 3,000 helmets? How much greater or less is this than the cost that was incurred? (Round Standard kilograms of plastic per helmet to 2 decimal places.) 2. Break down the difference computed in (1) above into a materials price variance and a materials quantity variance. (Round your actual materials price to two decimal places, and round your final answers to the nearest whole dollar. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Ans. 1 | Number of helmets | 3000 | |||
Standard kilograms of plastic per helmet | $0.53 | ||||
Total standard kilograms allowed | 1590 | ||||
Standard cost per kilogram | $8 | ||||
Total standard cost | $12,720 | ||||
Actual cost incurred | $14,364 | ||||
Total standard cost | $12,720 | ||||
Total materials variance - Unfavorable | $1,644 | ||||
*Total standard kilograms allowed = Number of helmets * Standard kilograms of plastic per helmet. | |||||
*Total standard cost = Total standard kilograms allowed * Standard cost per kilogram | |||||
*Total materials variance = Actual cost incurred - Total standard cost | |||||
*The variance is unfavorable because the actual cost incurred is higher than the budgeted / standard cost. | |||||
Ans. 2 | Materials price variance = (Standard price - Actual price) * Actual quantity | ||||
($8 - $7.60) * 1,890 | |||||
$0.40 * 1,890 | |||||
$756 | favorable | ||||
*Actual price = Actual cost / Actual quantity | |||||
$14,364 / 1,890 | |||||
$7.60 | |||||
Materials quantity variance = (Standard quantity - actual quantity) * Standard price | |||||
(1,590 - 1,890) * $8 | |||||
(-300) * $8 | |||||
-$2,400 | or $2,400 unfavorable | ||||
Total Materials Variance = Materials price variance + Materials quantity variance | |||||
$756 + (-$2,400) | |||||
-$1,644 | or $1,644 unfavorable |