Question

P3-uZ Company produces leather sandals. The company employs a standard costing system and has the following standards in order to produce one pair of sandals:
Standard quantity Standard price
Direct materials 2 leather strips ?? per strip
Direct Labor 2.5 hours $12 per hour
Variable overhead 2.5 hours ?? per hour

During May, P3-uz used 16,300 leather strips in the production of sandals. P3-uz had no beginning inventories of any type for May. At May 31, P3-uz had 600 leather strips remaining in its direct materials inventory.

P3-uz Company reported the following variances for May:

Direct material price variance $40,525 favorable
Direct labor rate variance $27,560 unfavorable
Total direct labor variance $37,240 favorable
Variable overhead spending variance $9,280 unfavorable
Variable overhead efficiency variance $60,480 favorable

Required:
Calculate P3-uz's direct material quantity variance for May.

Answer 1

Answer:

Direct material quantity variance for May = (16,300 - (2 * Actual number of sandals produced in May)) * 9.84

Explanation:

Note: This question is not complete as total cost of leather strips purchased and direct labor are both omitted. The complete question is therefore provided before answering the question as follows:

P3-uZ Company produces leather sandals. The company employs a standard costing system and has the following standards in order to produce one pair of sandals:

                                          Standard quantity              Standard price

Direct materials                    2 leather strips                  ?? per strip

Direct Labor                         2.5 hours                           $12 per hour

Variable overhead               2.5 hours                           ?? per hour

During May, P3-uz purchased leather strips at a total cost of $124,250 and had direct labor totaling $154,760. During May, P3-uz used 16,300 leather strips in the production of sandals. P3-uz had no beginning inventories of any type for May. At May 31, P3-uz had 600 leather strips remaining in its direct materials inventory.

P3-uz Company reported the following variances for May:

Direct material price variance $40,525 favorable

Direct labor rate variance $27,560 unfavorable

Total direct labor variance $37,240 favorable

Variable overhead spending variance $9,280 unfavorable

Variable overhead efficiency variance $60,480 favorable

Required:

Calculate P3-uz's direct material quantity variance for May.

The explanation of the answer is now given as follows:

Actual total quantity = Number of strips of leather used in production = 16,300

Number of strips of leather purchased = Actual total quantity + Number of leather strips remaining in its direct materials inventory = 16,300 + 600 = 16,900

Actual price per strips =  Total cost of leather strips purchased / Number of strips of leather purchased = $124,250 / 16,900 = $7.35

Direct material price variance = (Standard price – Actual price) * Actual quantity ................... (1)

Substituting the relevant values into equation (1) and solve for Standard price, we have:

$40,525 = (Standard price - 7.35) * 16,300

$40,525 = (Standard price * 16,300) - (7.35 * 16300)

(Standard price * 16,300) = $40,525 + (7.35 * 16300)

Standard price = ($40,525 + (7.35 * 16300)) / 16,300

Standard price = $9.84

Therefore, we have:

Direct material quantity variance for May = (Actual total quantity - (Standard quantity * Actual number sandals produced)) * Standard price ................. (2)

Substituting the relevant values into equation (2) and solve for Standard price, we have:

Direct material quantity variance for May = (16,300 - (2 * Actual number of sandals produced in May)) * 9.84 ............... (3)

Therefore, equation (3) gives the Direct material quantity variance for May since the question is silent on the Actual number of sandals produced produced in May.