The standard cost of Product B manufactured by Mateo Company includes three unit

Question

The standard cost of Product B manufactured by Mateo Company includes three units of direct materials at $5.00 per unit. During June, 28,000 units of direct materials are purchased at a cost of $4.70 per unit, and 28,000 units of direct materials are used to produce 9,000 units of Product B. The standard cost of Product B manufactured by Mateo Company includes three units of direct materials at $5.00 per unit. During June, 28,000 units of direct materials are purchased at a cost of $4.70 per unit, and 28,000 units of direct materials are used to produce 9,000 units of Product B. Compute the total materials variance and the price and quantity variances
Compute the total materials variance and the price and quantity variances
The standard cost of Product B manufactured by Mateo Company includes three units of direct materials at $5.00 per unit. During June, 28,000 units of direct materials are purchased at a cost of $4.70 per unit, and 28,000 units of direct materials are used to produce 9,000 units of Product B.

Explanation / Answer

SP=$5 (given)
SQ=27000 (9000@3per)
AP=$4.7(given)
AQ=28000 (given)

Now, price variance is AQ(SP-AP), or 28000($.3)=$8400 (This is favorable, since the materials were obtained at below average cost.)
Quantity variance is SP(SQ-AQ), or $5(-1000)=-$5000. (This is unfavorable, since more than the standard quantity was used.)
Total materials variance can be obtained two ways: SQ*SP-AQ*AP, or totaling the two variances already calculated. SQ*SP-AQ*AP=135000-131600=3400, which is the same as 8400+(-5000).

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