Question

Exercise 9-4 Direct Materials Variances [LO9-4]

Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 3,000 helmets, using 2,310 kilograms of plastic. The plastic cost the company $15,246.

According to the standard cost card, each helmet should require 0.68 kilograms of plastic, at a cost of $7.00 per kilogram.

Required:

1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 3,000 helmets?

2. What is the standard materials cost allowed (SQ × SP) to make 3,000 helmets?

3. What is the materials spending variance?

4. What is the materials price variance and the materials quantity variance?

(For requirements 3 and 4, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)

	1. Standard quantity of kilograms allowed 2. Standard cost allowed for actual output 3. Materials spending variance 4. Materials price variance Materials quantity variance

Answer 1

1. Standard quantity of kilograms allowed = Actual output * standard quantity of material per unit of output = 3,000 helmets * 0.68 kilogram per helmet = 2,040 kilograms

2. Standard cost allowed for actual output = Standard quantity of materials for actual output * standard rate per unit of material = 2,040 kilograms * $7 per kilogram = $14,280

3. Material spending variance = Standard cost - Actual cost = $14,280 - $15,246 = $966 U

As the actual cost is more than the standard cost, the variance is unfavorable

4. Actual rate of material = Actual cost of material / Actual quantity of material = $15,246 / 2,310 kilogram = $6.6 per kilogram

Material price variance = ( standard rate - Actual rate ) * Actual quantity = ( $7 - $6.6 ) * 2,310 kilogram = 924 F

As the actual rate is less than the standard rate, the variance is favorable

Material quantity variance = ( standard quantity - actual quantity ) * standard rate = ( 2,040 kilograms - 2,310 kilograms ) * $7 per kilogram = 1,890 U

As the actual quantity is more than the standard quantity, the variance is unfavorable.