Question

Oakwood Inc. manufactures end tables, armchairs, and other wood furniture products from high-quality materials. The company uses a standard costing system and isolates variances as soon as possible. The purchasing manager is responsible for controlling direct material price variances, and production managers are responsible for controlling usage variances. During November, the following results were reported for the production of American Oak armchairs:
Units produced 1,670 armchairs
Direct materials purchased 18,500 board feet
Direct materials issued into production 17,250 board feet
Standard cost per unit
(22 board feet × $7.2) $158.4 per unit produced
Purchase price variance $2,620 unfavorable
Required:
a. Calculate the actual price paid per board foot purchased.
b. Calculate the standard quantity of materials allowed (in board feet) for the number of units produced.
c. Calculate the direct materials usage variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Answer 1

Answer:

Oakwood Inc.

a) The actual price paid per board foot purchased is:

= $7.34

b) The standard quantity of materials allowed (in board feet) for the number of units produced is:

= 36,740 board feet

c) The direct materials usage variance is:

= $140,328 F

Explanation:

a) Data and Calculations:

i) Reported production of American Oak Armchairs:

Units produced = 1,670 armchairs

Direct materials purchased = 18,500 board feet

Direct materials issued into production = 17,250 board feet

ii) Standard cost per unit

(22 board feet × $7.2) $158.4 per unit produced

Purchase price variance $2,620

a) The actual price paid per board foot purchased

= Standard cost per board feet + (Purchase price variance/Quantity purchased)

= $7.20 + ($2,620/18,500)

= $7.20 + $0.14

= $7.34

b) The standard quantity of materials allowed (in board feet) for the number of units produced

= 22 * 1,670

= 36,740 board feet

c) The direct materials usage variance = (Standard Qty - Actual Qty) * Standard price per board feet

= (36,740 - 17,250) * $7.20

= $140,328 F