Griffen Company makes pipe using metal. The company uses a standard costing syst

Question

Griffen Company makes pipe using metal. The company uses a standard costing system. Variable overhead is allocated on the basis of direct material usage (pounds). Overhead is allocated to units based on expected production of 13,200 units. Griffen maintains a materials inventory, so the amount of material used is not necessarily the same as the amount of material purchased in any one month. The standard cost sheet for a unit of pipe follows: Direct material Direct labor Variable overhead Fixed overhead 7 pounds@S6$ 42.00 3 hours $26 78.00 7 pounds 3 21.00 21.00 $162.00 August financial results show that the average purchase price of metal was $6.30 per pound. The purchase price variance $35,100 unfavorable. The variable overhead efficiency variance was 9,200 unfavorable. Good output produced totaled 16,200 units. Required: a. How many pounds of metal were purchased in August? (Do not round intermediate calculations.) pounds b. What was the direct material efficiency variance in August? (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.) c. How many pounds of metal were used in August? (Do not round intermediate calculations.) pounds

Explanation / Answer

Purchase Price Variance = -35,100

(Standard Price – Actual Price)*Quantity Purchased = -35,100

(6-6.3)*Quantity Purchased = -35,100

Quantity purchased = 117,000 pounds

Direct Material Efficiency Variance = (Standard Quantity- Actual Quantity)*Standard Price

=(113400-110333)*6 = 18,402 favourable – Refer Part c

Working Note: Output = 16,200 units

Standard Quantity of Material = 16200*7 = 113,400 pounds

c.Variable Overhead Efficiency Variance = -9200

(Standard Quantity – Actual Quantity)*Standard Rate =- 9,200

(7*16200 – Actual Quantity used)*3 = -9200

340,200 – 3*Actual Quantity Used = - 9200

Actual Quantity used = 110,333 pounds

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