Question

The following standards have been established for a raw material used to make product O84:Standard quantity of the material per unit of output 9.0 metersStandard price of the material $ 19.80 per meterThe following data pertain to a recent month's operations:Actual material purchased 5,300 metersActual cost of material purchased $ 107,060 Actual material used in production 5,200 metersActual output 690 units of product O84The direct materials purchases variance is computed when the materials are purchased.Required:a. What is the materials price variance for the month?b. What is the materials quantity variance for the month?

Answer 1

Answer:

Price variance        $2,120 unfavorable

Quantity variance       $ 19,998    Favorable

Explanation:

Material price variance

A material price variance occurs where materials are purchased at a price either lower or higher than the standard price. A favorable variance is recorded where the actual total cost of materials is lower that the standard cost. While an adverse variance implies the opposite.

                                                                                      $

5,300  meters  should have cost (5300×$19.80) = 104940

but did cost (actual cost -)                                   =   107,060

Price variance                                                               2120 unfavorable

Material quantity variance occurs when the actual quantity used to achieved a given level of output is more or less than the standard quantity.

It is determined by the difference between the actual and standard quantity of material for the actual level of output multiplied by the the standard price

pounds

                                                                                      Meters

Standard quantity allowed (9 × 690)                        6210

Actual quantity                                                            5,200  

quantity variance (metres)                                               1010

Standard price                                                             × $19.80

Quantity variance                                                          $ 19,998    Favorable