Use the following to answer questions 1-2: Luc, Inc., manufactures a single prod

Question

Use the following to answer questions 1-2:

Luc, Inc., manufactures a single product. The company uses a standard cost system and has established the following direct material standards for one unit of product:

Direct materials.............................. Standard Quantity= 2.0 pounds Standard Price= $4.00 per pound

During March, the following activity was recorded by the company:

- The company produced 4,000 units during the month, which was 500 less than budgeted.

- A total of 10,000 pounds of material were purchased at a cost of $38,000.

- There was no beginning inventory of materials on hand to start the month; at the end of the month, 3,000 pounds of material remained in the warehouse.

1. The materials price variance for March is (indicate amount and if variance is favorable or unfavorable) : _______________________

2. The materials quantity variance for March is (indicate amount and if variance is favorable or unfavorable) : _____________________

Explanation / Answer

Material price variance = (Standard price-actual price)actual quantity

= (4*10000-38000)

Material price variance = 2000 Favorable

Material quantity variance = (Standard quantity-actual quantity)Standard price

= ( 4000*2-7000)*4

Material quantity variance = 4000 Favorable

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