Question

Tulia Company manufactures agricultural implements. At the beginning of the third quarter of 2018, the company had planned to produce 400 units of output during the quarter; this level of demand was considered “normal” for the period and reflected the average demand in the third quarter for the previous three years. However, a marketing decision by Tulia’s management to cut prices by 5 percent during the quarter led to an uptick in demand, with the result that the company increased production to 450 units for the quarter. The company tracks four factory inputs: direct materials, direct labor, variable factory overhead, and fixed factory overhead. Both variable and fixed factory overhead are applied using predetermined rates based on direct labor hours. For each of the following cost components, an examination of the records revealed the following amounts:

Direct materials: Standard cost per unit of direct materials: $3.50 per pound.

Direct materials price variance: $350 U.

Total pounds of standard direct materials allowed for the actual output achieved: 2,700 pounds. Direct materials quantity variance: $70 U. Actual quantity of direct material purchased: 3,500 pounds.

1. Compute the following amounts (make sure you indicate the direction of any variance computed):

a. Standard cost of direct material allowed per unit of output: $_______________ .

b. Actual cost per pound of direct materials purchased: $_______________.

c. Actual quantity of materials used in production: _______________ pounds.

Answer 1

answer :-

1(a) :- A Standard cost of direct material allowed per unit of output:

we already know that

the company had planned to produce of output during the quarter (Total production budget )= 400 units

Total pounds of standard direct materials allowed for the actual output achieved (Total standard cost material purchase ) = 2700

material cost = 3.5 per pound

we find out total pound per unit = 2700 / 400

   6.75

total pound = 6.75

but we have to multiply with 3.5 because of material cost = 6.75 * 3.5

23.625

so, Standard cost of direct material allowed per unit of output = 23.625.

(b) Here we need to find out Actual cost per pound of direct materials purchased

we already know the formula for knowing actual cost = (SP-AP)* A Q

where SP is material cost = 3.5

given that Actual quantity of direct material purchased (AQ) 3,500 pounds.

let us consider AP is = x.

Direct materials price variance = $350 U.

substituting all values in the formula

then we get,

350 u = (3.5 -x) 3500

350/3500 u =(3.5-x)

0.1 u =(3.5-x)

here we have to neglect the values of u and x then ,

0.1

because of unfavorable condition we have to add material cost to it .

Therefore,

0.1 + 3.5

3.6

hence, Actual cost per pound of direct materials purchased = 3.6 $

(c) here we need to find out Actual quantity of materials used in production

we already know the formula for knowing Actual quantity of materials = (A Q-SQ)* SD price

total pound = 6.75

6.75 * 4500

3037.5

Actual quantity of materials used in production is = 3037.5.