Practice Question 1- Material Variances Michigan Company has developed the follo

Question

Practice Question 1- Material Variances Michigan Company has developed the following raw material standards for a single unit of one of its products, the Cruiser - 138.6 pounds of grotelite at a cost of $23.40 per pound. During a recent month, Michigan purchased and used 35,000 pounds of grotelite at a cost of $25.00 per pound to produce 250 Cruisers. Calculate the material variances. Note: Purchased materials and used materials are the same amount. a. Material Price Variance 1. What is the actual price per pound (AP)? 2. What is the standard price per pound (SP)? 3. What is the actual quantity purchased (AQ)? 4. Using the equation (SP - AP)AQ calculate material price variance? b. Material Quantity Variance 1. What was the actual production? 2. What are the standard pounds per unit? 3. What quantity should have been used (SQ)? 4. What is the actual quantity used (AQ)? 5. What is the standard price per unit (SP)? 6. Using the equation (SQ - AQ)SP calculate material quantity variance?

Explanation / Answer

(a) (1) Actual price per pound = $25 (2) SP = $23.4 (3) AQ = 35000 pounds (4) Material price variance = (SP - AP)AQ = (23.4 - 25) x 35000 = $56000U (b) (1) Actual production = 250 units (2) Standard pounds per unit = 138.6 pounds (3) SQ = 250 x 138.6 = 34650 pounds (4) AQ = 35000 pounds (5) SP = $23.40 (6) (SQ - AQ)SP = (34650 - 35000) x 23.4 = $8190U Hope this helps!

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