Question

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 23 minutes and 6.8 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: 5,420 quarts
Actual price paid per quart of oil: $5.20
Standard price per quart of oil: $5.15

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	$	- Select your answer -FavorableUnfavorableItem 2
MUV	$	- Select your answer -FavorableUnfavorableItem 4

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

$ - Select your answer -FavorableUnfavorableItem 6

3. What if the actual number of quarts of oil purchased in June had been 5,330 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)?

$ - Select your answer -FavorableUnfavorableItem 8

What would be the materials usage variance (MUV)?

$ - Select your answer -FavorableUnfavorable

Answer 1

Answer:

1.

Direct Material Price Variance

Actual Quantity = 5,420 Quarts

Material Price Variance = (Actual Quantity * Standard Price) - (Actual Quantity * Actual Price)

                                          = (5,420 Quarts * $5.15 per quart) - (5,420 Quarts * $5.20 per quart)

                                         = $27,913 - $28,184

                                         = ($271)

                                         = $271 Unfavorable

Direct Material Usage Variance

Standard Quantity per Change = 6.8 quarts

Standard Quantity for 920 changes = 6.8 quarts* 920 = 6,256 quarts

Material efficiency Variance = (Standard Quantity * Standard Price) - (Actual Quantity * Standard Price)

                                                = (6,256 quarts * $5.15 per quart) - (5,420 Quarts * $5.15 per quart)

                                               = $32,218.4 - $27,913

                                               = $4,305.4

                                               = $4,305.4 Favorable

2. Total direct materials variance

Direct material variance = (Standard Quantity * Standard Price) - (Actual Quantity * Actual Price)

                                   = (6,256 quarts * $5.15 per quart) - (5,420 Quarts * $5.20 per quart)

                                   = $32,218.4 - $28,184

                                   = $4,034.4

3. If Actual number of quarts purchased and used 5,330 quarts

Note: It is assumed that the entire purchases made in June are used for that 920 changes.

Direct Material Price Variance

Actual Quantity = 5,330 Quarts

Material Price Variance = (Actual Quantity * Standard Price) - (Actual Quantity * Actual Price)

                                          = (5,330 Quarts * $5.15 per quart) - (5,330 Quarts * $5.20 per quart)

                                         = $27,449.5 - $27,716

                                         = ($266.5)

                                         = $266.5 Unfavorable

Direct Material Usage Variance

Standard Quantity per Change = 6.8 quarts

Standard Quantity for 920 changes = 6.8 quarts* 920 = 6,256 quarts

Material efficiency Variance = (Standard Quantity * Standard Price) - (Actual Quantity * Standard Price)

                                                = (6,256 quarts * $5.15 per quart) - (5,330 Quarts * $5.15 per quart)

                                               = $32,218.4 - $27,449.5

                                               = $4,768.9

                                               = $4,768.9 Favorable