Question

11.

Regent Corp. uses a standard cost system to account for the costs of its one product. Materials standards are 2.8 pounds of material at $13 per pound, and labor standards are 4 hours of labor at a standard wage rate of $10. During July Regent Corp. produced 3,280 units. Materials purchased and used totaled 10,050 pounds at a total cost of $132,050. Payroll totaled $147,380 for 13,240 hours worked.   

a. Calculate the direct materials price variance. (Do not round your intermediate calculations. Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i.e., zero variance).)



b. Calculate the direct materials quantity variance. (Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i.e., zero variance).)

Answer 1

Solution - Direct material price variance -

If actual price paid for actual quantity purchased is more than standard price for actual quantity purchased then it will be unfavourable and if vice versa ( actual price is less than standard price ) then it will be favourable and if both the above said amounts are equal then zero variance.

Now lets write given information in question which is as follows :

actual quantity ( purchased and used ) = 10,050 pounds

actual price = $ 132,050 / 10,050 pounds = $ 13.1393 per pound (we will not use this rate since it has been mentioned in question to not to round off )

Standard price = $ 13 per pound

Now, Direct material price variance = (actual quantity * actual price ) - ( actual quantity * standard price )

= ( 10,050 * $ 13.1393 ) - ( 10,050 * $ 13 )

= $ 132,050 - $ 130650

= $ 1,400 unfavourable

Note 1) - $ 1400 is unfavourable because actual price ( $ 132,050 ) for total material purchased is more than standard price ( $ 130,650 ) set by the company. This means that purchase department has incurred more cost on materials purchase than it should have incurred and so it is unfavourable to the company.

Note 2) - Rate of $ 13.1393 is calculated in written just for presentational purpose otherwise the total amount incurred for purchase of material has been taken from the question as it is. i.e. amount of $ 132,050.

Direct material quantity variance

lets first write the given information in question which is as follows ;

actual quantity (used ) for 3,280 units = 10,050 pounds

standard price = $ 13 per pound

standard quantity for 3,280 units = 3280 units * 2.8 pounds = 9184 pounds

Now , Direct material quantity variance = ( Actual quantity * standard price ) - ( standard quantity * standard price )

= ( 10,050 pounds * $ 13 ) - ( 9184 pounds * $ 13)

= $ 130,650 - $ 119,392

= $ 11,258 unfavourable

Note 3) - $11,258 is unfavourable because production department has used more quantity of material in comparison to the standard set by the company for quantity of material that should be used.Or actual quantity of material used is more than standard quantity set by the company.