Question

Instructions:

Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

DIRECT MATERIALS
	Cost Behavior	Units per Case	Cost per Unit	Cost per Case
Cream base	Variable	100 ozs.	$0.02	$2.00
Natural oils	Variable	30 ozs.	0.30	9.00
Bottle (8-oz.)	Variable	12 bottles	0.50	6.00
				$17.00

DIRECT LABOR
Department	Cost Behavior	Time per Case	Labor Rate per Hour	Cost per Case
Mixing	Variable	20 min.	$18.00	$6.00
Filling	Variable	5	14.40	1.20
		25 min.		$7.20

FACTORY OVERHEAD
	Cost Behavior	Total Cost
Utilities	Mixed	$600
Facility lease	Fixed	14,000
Equipment depreciation	Fixed	4,300
Supplies	Fixed	660
		$19,560

Part C—August Variance Analysis

During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 250 more cases than planned at the beginning of the month. Actual data for August were as follows:

	Actual Direct Materials
	Price per Unit	Quantity per Case
Cream base	$0.016 per oz.	102 ozs.
Natural oils	$0.32 per oz.	31 ozs.
Bottle (8-oz.)	$0.42 per bottle	12.5 bottles

	Actual Direct	Actual Direct Labor
	Labor Rate	Time per Case
Mixing	$18.20	19.50 min.
Filling	14.00	5.60 min.

Actual variable overhead	$305.00
Normal volume	1,600 cases

The prices of the materials were different than standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.

	Required-Part C:
10.	Determine and interpret the direct materials price and quantity variances for the three materials. Round your price values for Cream Base to three decimal places and Natural Oils & Bottles to two decimal places.*

10. Determine and interpret the direct materials price and quantity variances for the three materials. For those boxes in which you must enter subtractive or negative numbers use a minus sign. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your price values for Cream Base to three decimal places and Natural Oils & Bottles to two decimal places.

Direct Materials Price Variance
	Cream Base		Natural Oils		Bottles
Difference
Direct materials price variance

Direct Materials Quantity Variance
	Cream Base		Natural Oils		Bottles
Difference
Direct materials quantity variance

The fluctuation in __________ caused the direct material price variances. All the Direct material quantity variances were ____________ indicating ____________ .

Answer 1

Part C

10.       Direct Materials Price Variance:

			Cream				Natural
			Base				Oils				Bottles
Actual price…………………………	$	0.016			$	0.32		$	0.42
Standard price……………………			0.020					0.30				0.50
Difference…………………………	$	(0.004)		$	0.02		$	(0.08)
× Actual quantity (units)*………			153,000		ozs.			46,500	ozs.			18,750	btls.
Direct materials price variance…	$	(612) F	$	930	U	$	(1,500) F

* Actual quantity:

Cream base: 1,500 cases × 102 ozs. = 153,000 ozs.

Natural oils: 1,500 cases × 31 ozs. = 46,500 ozs.

Bottles: 1,500 cases × 12.5 bottles = 18,750 bottles

The fluctuation in market prices caused the direct material price variances. Prices increased for natural oils compared to standard and declined for cream base and bottles compared to standard.

Direct Materials Quantity Variance:

		Cream			Natural
		Base			Oils			Bottles
Actual quantity1………………………	153,000	ozs.		46,500		ozs.		18,750	btls.
Standard quantity2……………………	150,000			45,000				18,000
Difference………………………………		3,000	ozs.		1,500		ozs.		750	btls.
× Standard price………………………	$	0.02		$	0.30			$	0.50
Direct materials quantity variance…	$	60	U	$	450		U	$	375	U

All the direct materials quantity variances were unfavorable, indicating some material losses, scrap, and quality rejections. All the quantity variances were unfavorable because the standards were set at ideal quantity amounts.

Thus, only unfavorable variances were possible. The standard quantities were ideal standards for 12 8-ounce bottles per case (96 ozs. total), as shown below.

1Actual quantity:

Cream base: 1,500 cases × 102 ozs. = 153,000 ozs.

Natural oils: 1,500 cases × 31 ozs. = 46,500 ozs.

Bottles: 1,500 cases × 12.5 bottles = 18,750 bottles

2Standard quantity:

Cream base: 1,500 cases × 100 ozs. = 150,000 ozs.

Natural oils: 1,500 cases × 30 ozs. = 45,000 ozs.

Bottles: 1,500 cases × 12 bottles = 18,000 bottles