Question

Use the following information for the Exercises below.

[The following information applies to the questions displayed below.]

Hart Company made 3,280 bookshelves using 22,280 board feet of wood costing $300,780. The company's direct materials standards for one bookshelf are 8 board feet of wood at $13.40 per board foot.

Exercise 08-13 Computing and interpreting materials variances LO P3

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

(1) Compute the direct materials price and quantity variances and classify each as favorable or unfavorable.
(2) Hart applies management by exception by investigating direct materials variances of more than 5% of actual direct materials costs. Which direct materials variances will Hart investigate further?

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Answer 1

Solutions

1. Computation of direct material and quantity varience

Given:- Actual Output = 3280 bookshelves

Actual quantity use = 22280 Board feet

Actual cost = $300780

Then: Actual price will be = Actual cost / Actual quantity
= $300780 / 22280
= $13.5 per unit of bookshelves

Given:- Standered Quantity = 8 board per bookshelve

Standered price = $13.40

Then: Standered quantity for actual output = standered quantit x actual output
= 8 board x 3280 bookshelves
= 26240 board feet

Computation of direct material price varience

Direct material price varience = Actual quantity x (standered price - actual price)
= 22280 x (13.40 - 13.5)
= $2228 unfavourable

computation of direct material quantity varience

Direct material quantity varience = standered price x (standered quantity for actual output - actual quantity)
= 13.40 x (26240 - 22280)
= $53064 favourable

2. Direct material quantity varience is more than 5% of actual direct material cost therefore direct material quantity should be investigated further.