Question

ornerstone Exercise 9.2 (Algorithmic) Calculating the Direct Materials Price Variance and the Direct Materials Usage Variance Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 22 minutes and 6.6 quarts of oil are used. In June, Guillermo's Oil and Lube had 900 oil changes. Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June: Actual number of oil changes performed: 900 Actual number of quarts of oil used: 5,440 quarts Actual price paid per quart of oil: $5.10 Standard price per quart of oil: $4.95 Required: 1. Calculate the direct materials price variance (MPV) and the direct materials usage variance (MUV) for June using the formula approach. If required, round your answers to the nearest cent. MPV $ - Select your answer -FavorableUnfavorableItem 2 MUV $ - Select your answer -FavorableUnfavorableItem 4 2. Calculate the total direct materials variance for oil for June. If required, round your answer to the nearest cent. $  - Select your answer -FavorableUnfavorableItem 6 3. What if the actual number of quarts of oil purchased in June had been 5,370 quarts, and the materials price variance was calculated at the time of purchase? If required, round your answers to the nearest cent. What would be the materials price variance (MPV)? $  - Select your answer -FavorableUnfavorableItem 8 What would be the materials usage variance (MUV)? $  - Select your answer -FavorableUnfavorableItem 10

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Answer 1

1. Material Price Variance = (Standard price per quart of oil - Actual price paid per quart of oil) x Actual number of quarts of oil used = ($ 4.95 - $ 5.10) x 5440 quarts = -0.15 x 5440 = $ -816.

Since this variance is negative, it is an Unfavourable variance.

Material Usage Variance = (Standard number of quarts of oil - Actual number of quarts of oil used) x Standard price per quart of oil

= [ (900 oil changes x 6.6 quarts per oil change) - 5440 quarts ] x $ 4.95

= (5940 quarts - 5440 quarts) x $ 4.95

= 500 x $ 4.95 = $ 2475 (Favourable)

2. Total Material Cost Variance = ([Standard number of quarts of oil x Standard price per quart of oil] - [Actual number of quarts of oil used x Actual price paid per quart of oil])

= ([ 5940 x $4.95] - [5440 x $5.10]) = (29403 - 27744) = $ 1659 (Favourable)

3. Assuming that actual number of quarts of oil purchased is 5,370 quarts.

Material Price Variance = ($ 4.95 - $ 5.10) x 5370 quarts = $ -0.15 x 5370 = $ -805.50 (Unfavourable)

Material Usage Variance - Since this variance is always based on the Actual quantity USED, it will be the same as calculated earlier = (5940 quarts - 5440 quarts) x $ 4.95 = $ 2475 (Favourable)