Question

In: Accounting

The standard cost of product 777 includes 2.40 units of direct materials at $6.80 per unit....

The standard cost of product 777 includes 2.40 units of direct materials at $6.80 per unit. During August, the company bought 29,300 units of materials at $7.05 and used those materials to produce 12,400 units.

Compute the total, price, and quantity variances for materials.

Total materials variance $                                                           FavorableNeither favorable nor unfavorableUnfavorable
Materials price variance $                                                           Neither favorable nor unfavorableFavorableUnfavorable
Materials quantity variance $                                                           UnfavorableFavorableNeither favorable nor unfavorable

Solutions

Expert Solution

Total materials variance $ 4,197 Unfavorable
Materials price variance $ 7,325 Unfavorable
Materials quantity variance $ 3,128 Favorable
Calculation of Total material variance:
Total Material variance = Standard material cost - Actual material cost
= ( SQ * SP ) - ( AQ * AP )
= ( 29,760 * $ 6.80 ) - ( 29,300 * $ 7.05 )
= $ 202,368 - $ 206,565
= $ 4,197 Unfavorable
Thus, Total material variance is $ 4,197 Unfavorable
Working Note:
Calculation of Standard quantity of materials :
Standard quantity of materials ( SQ) = Actual Production units * Standard Quantity of direct material required for per unit
= 12,400 units * 2.4
= 29,760
Calculation of material price variance:
Material Price Variance= = ( SP -AP ) * AQ
= ( $ 6.80 - $ 7.05 ) * 29,300
= $ 7,325 Unfavorable
Thus, Material Price Variance is $ 7,325 Unfavorable
Calculation of Material Quantity Variance is as follows:
Material Quantity Variance = ( SQ - AQ ) * SP
= ( 29,760 - 29,300 ) * $ 6.80
= $ 3,128 Favorable
Thus, Material Quantity Variance is $ 3,128 Favorable

Note:

SQ Standard Quantity of Material
AQ Actual Quantity of Material
SP Standard Price of per material
AP Actual Price of per material

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