Neilson Manufacturing produces baseball equipment. The standard cost of producin

Question

Neilson Manufacturing produces baseball equipment. The standard cost of producing one unit of model XHR is: Material (3.50 ounces at $1.26 per ounce) $4.41 Labor (0.30 hour at $12.00 per hour) 3.60 Total $8.15 At the start of 2008, Neilson’s planned to produce 80,000 units during the year. The following information summarizes the results for 2011: Actual production was 75,000 units. Purchased 275,000 ounces of material at a total cost of $343,750. Used 266,250 ounces of material in production. Employees worked 22,000 hours and were paid $275,000. What is the material price purchases variance?

Explanation / Answer

Material purchase price variance = (Actual price - Standard price) * Actual quantity

                                               = [($343750 + $275000) - ($8.01 * 80000 )] * 75000

                                              = ($618750 - $640800) * 75000

                                              = -$22050 * 75000

                                              = -$1653750000

Negative variance shows actual costs have declined.

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