Question

Hart Company made 3,340 bookshelves using 22,340 board feet of wood costing $308,292. The company's direct materials standards for one bookshelf are 8 board feet of wood at $13.70 per board foot.

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?

Compute the direct materials price and quantity variances and classify each as favorable or unfavorable. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance.)

	Actual Cost 0 0 Standard Cost 0 $0 0 $0 $0 $0

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?

	Which direct materials variances will Hart investigate further?

Answer 1

1)Direct material price variance =[AQ*AP]- [AQ*SP]

                 = 308292 - [22340 * 13.70]

                 = 308292 - 306058

                 = 2234 U

Direct material quantity variance = [SP*AQ]- [SP*SQ]

                           = [13.70 * 22340]-[13.70* 26720]

                          = 306058 - 366064

                         = - 60006 F (Enter as 60006 F if needs to enter as positive value]

Note:

#SQ allowed for prodution = Actual output *SQ per unit

         = 3340*8

          = 26720

2)Management by exception is a strategy whereby managers identify significant deviations from planned outcomes.

Hart will investigate in to Direct material quantity variance as The direct material quantity variance is more than 5 % of actual direct material cost (60006 F > 5% OF 308292 WHICH IS EQUALS TO 15414.6)