Question

7-26 Price and efficiency variances. Modern Tiles Ltd. manufactures ceramic tiles. For January 2017, it budgeted to purchase and use 10,000 pounds of clay at $0.70 a pound. Actual purchases and usage for January 2017 were 11,000 pounds at $0.65 a pound. Modern Tiles Ltd. budgeted for 40,000 ceramic tiles. Actual output was 43,000 ceramic tiles.

Required:

1. Compute the flexible-budget variance.

2. Compute the price and efficiency variances.

3. Comment on the results for requirements 1 and 2 and provide a possible explanation for them.

Please write by computer instead of by hand

Answer 1

1)
	Flexible budget	Actual results	Variance
Units	43,000	43,000	-
Material used	10,750.00	11,000.00	250
Material price	$                                                0.70	$                               0.65	$                               -0.05
Material costs	$                                        7,525.00	$                       7,150.00	$                           -375.00
2)
Direct Material Price Variance = (SP − AP ) × AQ PURCHASED
Direct Material Price Variance = (0.70-0.65) × 11000
Direct Material Price Variance	$                                                 550	Favourable variance
Direct Material effeciency Variance = (AQ USED − SQ USAGE ) × SP
Direct Material effeciency Variance = (11000 − 10750) × 0.70
Direct Material effeciency Variance	$                                               -175	Unfavourable variance
Direct Material cost Variance = Actual costs - standard costs
Direct Material cost Variance = 7150-7525
Direct Material cost Variance =	$                                                 375	Favourable variance

3)

Usage has been gretaer than compared to standard but rate has been lesser than what was budgeted.

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