Question

Jake’s Cheese Company produces gourmet cheese for resale at local grocery stores. Jake’s expected to use 3.0 pounds of direct materials to produce one unit (batch) of product at a cost of $8 per pound. Actual results are in for last year, which indicates 45,000 batches of cheese were sold. The company purchased 160,000 pounds of materials at $7.50 per pound and used 145,000 pounds in production. (13 Points)

Required:

(1)       Calculate the materials price variance.    

(2)       Calculate the materials quantity variance.           

(3)       Suggest several possible reasons for the materials price and quantity variances calculated in requirements (1) and (2).

Answer 1

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Jake’s Cheese Company	Finished Units	Input per unit	Input required	Rate per unit	Amount
Answer 2
Direct Material Variance
Standard Price allowed for Actual Output at Standard Price	45,000.00	3.00	135,000.00	8.00	1,080,000.00	A
Actual Quantity of Input used at Standard Price			145,000.00	8.00	1,160,000.00	B 1
Quantity Variance (B 1-A)					80,000.00	Unfavorable
Answer 1
Actual Quantity of materials purchased at Standard Price			160,000.00	8.00	1,280,000.00	B 2
Actual cost of materials			160,000.00	7.50	1,200,000.00	C
Price Variance (C-B 2)					(80,000.00)	Favorable

Answer 3

Material quantity variance is because company is using more quantity than the standard.

Material price variance is because company is saving price per pound.