Question

In: Accounting

Calculating the Direct Materials Price Variance and the Direct Materials Usage Variance Guillermo's Oil and Lube...

Calculating the Direct Materials Price Variance and the Direct Materials Usage Variance

Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 30 minutes and 6.4 quarts of oil are used. In June, Guillermo's Oil and Lube had 920 oil changes.

Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June:

Actual number of oil changes performed: 920

Actual number of quarts of oil used: 6,600 quarts

Actual price paid per quart of oil: $5.10

Standard price per quart of oil: $5.05

Required: 1. Calculate the direct materials price variance (MPV) and the direct materials usage variance (MUV) for June using the formula approach. If required, round your answers to the nearest cent.

MPV $__________ Unfavorable

MUV $__________ Unfavorable

2. Calculate the total direct materials variance for oil for June. If required, round your answer to the nearest cent.

$__________ Favorable

3. What if the actual number of quarts of oil purchased in June had been 6530 quarts, and the materials price variance was calculated at the time of purchase? If required, round your answers to the nearest cent.

What would be the materials price variance (MPV)?

$ ___________Unfavorable

What would be the materials usage variance (MUV)?

$ ___________Unfavorable

Solutions

Expert Solution

  • All working forms part of the answer
  • Working for Actual data and Standard data for actual

Actual DATA for

920

Oil changes

Quantity (AQ)

Rate (AR)

Actual Cost

Direct Material

6600 quarts

$                5.10

$           33,660.00

Standard DATA for

920

Oil changes

Quantity (SQ)

Rate (SR)

Standard Cost

Direct Material

5888 quarts [920 x 6.4]

$                5.05

$           29,734.40

  • Answer 1 and 2

Material Price Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Quantity

(

$                 5.05

-

$                 5.10

)

x

6600

-330

Variance

330

Unfavourable-U

Material Quantity Variance

(

Standard Quantity

-

Actual Quantity

)

x

Standard Rate

(

5888

-

6600

)

x

$                           5.05

-3595.6

Variance

3595.6

Unfavourable-U

Material Spending Variance – ANSWER 2

(

Standard Cost

-

Actual Cost

)

(

$      29,734.40

-

$      33,660.00

)

-3925.6

Variance

3925.6

Unfavourable-U

  • Answer 3

Working

Actual DATA for

920

Oil changes

Quantity (AQ)

Rate (AR)

Actual Cost

Direct Material purchased

6530 quarts

$                5.10

$           33,303.00

Standard DATA for

920

Oil change

Quantity (SQ)

Rate (SR)

Standard Cost

Direct Material

5888 quarts

$                5.05

$           29,734.40

Material Price Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Quantity

(

$                 5.05

-

$                 5.10

)

x

6530

-326.5

Variance

326.5

Unfavourable-U

Material Quantity Variance (USAGE)

(

Standard Quantity

-

Actual Quantity

)

x

Standard Rate

(

5888

-

6530

)

x

$                           5.05

-3242.1

Variance

3242.1

Unfavourable-U


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