Question

Picard Landscaping plants grass seed as the basic landscaping for business campuses. During a recent month, the company worked on three projects (Remington, Chang, and Wyco). The company is interested in controlling the materials costs, namely the grass seed, for these plantings projects.

In order to provide management with useful cost control information, the company uses standard costs and prepares monthly variance reports. Analysis reveals that the purchasing agent mistakenly purchased poor-quality seed for the Remington project. The Chang project, however, received higher-than-standard-quality seed that was on sale. The Wyco project received standard-quality seed. However, the price had increased and a new employee was used to spread the seed.

Shown below are quantity and cost data for each project.

		Actual					Standard
Project		Quantity			Costs		Quantity			Costs		Total Variance
Remington		500	lbs.		$1,200		460	lbs.		$1,150		$50	U
Chang		400			920		410			1,025		105	F
Wyco		550			1,430		480			1,200		230	U
Total variance												$175	U

(a)

Prepare a variance report for the purchasing department. (Round actual and standard price per pound answers to 2 decimal places e.g. 1.25.)

PICARD LANDSCAPING Variance Report – Purchasing Department For the Current Month

Project

Actual Pounds Purchased

Actual Price Per Pound

Standard Price Per Pound

Price Variance

Explanation

Remington

$

$

$

Neither favorable nor unfavorableUnfavorableFavorable

Seeds on SalePurchased Higher-quality SeedsPrice/lb. IncreasedNew EmployeePurchased Poor-quality Seeds

Chang

FavorableNeither favorable nor unfavorableUnfavorable

Purchased Higher-quality SeedsPurchased Poor-quality SeedsNew EmployeePrice/lb. IncreasedSeeds on Sale

Wyco

Neither favorable nor unfavorableFavorableUnfavorable

New EmployeeSeeds on SalePurchased Higher-quality SeedsPurchased Poor-quality SeedsPrice/lb. Increased

Total price variance

$

FavorableNeither favorable nor unfavorableUnfavorable

(b)

Prepare a variance report for the production department. (Round standard price per pound to 2 decimal places, e.g. 1.25.)

PICARD LANDSCAPING Variance Report – Production Department For the Current Month

Project

Actual Pounds

Standard Pounds

Standard Price Per Pound

Quantity Variance

Explanation

Remington

$

$

UnfavorableNeither favorable nor unfavorableFavorable

Seeds on SaleNew EmployeePurchased Higher-quality SeedsPurchased Poor-quality SeedsPrice/lb. Increased

Chang

Neither favorable nor unfavorableUnfavorableFavorable

Seeds on SalePurchased Poor-quality SeedsPrice/lb. IncreasedNew EmployeePurchased Higher-quality Seeds

Wyco

FavorableUnfavorableNeither favorable nor unfavorable

Price/lb. IncreasedPurchased Poor-quality SeedsSeeds on SalePurchased Higher-quality SeedsNew Employee

Total quantity variance

$

FavorableNeither favorable nor unfavorableUnfavorable

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Answer 1

Requirement 1

Direct Material Price Variance is the difference between actual price paid for purchased materials and their standard cost. It helps to monitor the costs incurred to produce the goods.

Direct Material Price Variance

                = Actual Quantity (Actual Price – Standard Price)

variance report for the purchasing department.

Project	Actual pounds purchased	Actual price	Standard Price	Price Variance	Possible Explanations
Remington	500	1200/500	$2.40	1150/460	$2.50	500 * ($2.40 - $2.50)	$50.00	F	Purchase of poor quality seeds
Chang	400	920/400	$2.30	1025/410	$2.50	400 * ($2.30 - $2.50)	$80.00	F	Seeds are on sale
Wyco	550	1430/550	$2.60	1200/480	$2.50	550 * ($2.60 - $2.50)	$55.00	U	Increase of price
Total price variance							$185.00	F

Requirement 2

Direct Material Usage/Quantity Variance measures efficiency in the use of material by comparing standard material usage for actual production with actual material used, the difference is valued at standard cost.

Direct Material Usage Variance

                                = Standard Price ( Actual Quantity – Standard Quantity)

variance report for the production department

Project	Actual pounds purchased	Standard Pounds	Standard Price	Quantity Variance	Explanation
Remington	500	460	1150/460	$2.50	$2.50 * (500-460)	$100.00	U	Purchase of poor quality seeds
Chang	400	410	1025/410	$2.50	$2.50 * (400-410)	$25.00	F	Purchase of higher quality seeds
Wyco	550	480	1200/480	$2.50	$2.50 * (550-480)	$175.00	U	New Employee
Total quantity variance					$300.00	U

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