Question

Golden uses a standard costing system. For production of a fuel cell, standards call for 4 model RN-3 valves per cell costing $2,480 each. During 2018, the company purchased 270 valves for $661,500. The company used 228 valves in the production of 55 fuel cells (8 valves were ruined through installation error).

Calculate material price and quantity variances for the model RN-3 valves. (Enter all variances as a positive number.)

Material Price Variance $

FavorableUnfavorableNeither Unfavorable nor Favorable

Material Quantity Variance $

UnfavorableFavorableNeither Unfavorable nor Favorable

Answer 1

Material price variance is due to difference between actual price paid & standard price specified for the material.

It represents the difference between standard cost of actual quantity purchased & actual cost of these materials.

Material price variance = (Actual price - standard price)*actual quantity purchased

MPV = (2450-2480)*270

= 30*270

= $ 8100 Favorable

Material quantity variance(MQV) is that part of material cost variance which is due to difference between actual quantity used and standard qty. specified for output.

Material qty. variance = (standard qty for actual output - Actual qty. used)*standard rate

standard qty. for actual output = 4 valves(standard qty.) * 55 cells (actual output)

= 220 valves

Actual qty. used = 228 valves

standard rate = $ 2480

put all the values in above formula

Material qty. variance = (220-228)*2480

= 8*2480

= $ 19840 unfavorable

Please check with your answer and let me know.