Question

Woof Woof Inc manufactures heavy duty dog bowls. The standard amount of specialty plastic used for each dog bowl is 2 pounds. The standard price of the specialty plastic is $1.75 per pound. Last year, Woof Woof manufactured 4,000 dog bowls. Woof Woof had used 7,850 pounds of plastic for the 4,000 bowls manufactured. Woof Woof paid $15,700 for the 7,850 pounds of plastic. Determine the price variance, quantity variance, and overall variance. Explain what the variance indicate and what are the possible causes of the variances?

Answer 1

	Standard			Actual
Particulars	Quantity	Rate	amount	Quantity	Rate	amount
Materials	8,000.00	1.75	14,000.00	7,850.00	2.00	15,700.00
Actual output	4,000.00
Materials reqd (4000*2)	8,000.00
DMPV = (SP-AP)*AQ purchased
DMPV = (1.75 - 2)7850
DMPV = 1,962.50 U
DMQV= (SQ-AQ)SP
DMQV= (8000 - 7850)1.75
DMQV= 262.50 F
Direct material cost variance= Std cost - Actual cost
Direct material cost variance= 14000 - 15700
Direct material cost variance= 1700 U
Unfavourable price variance means purchase department has purchased the materials at higher cost.. Thus they are accountable for the same
Favourable Quantity variance means production team has worked more efficiently than expected