4. The Silent Door Company manufactures soundproof doors. Each door requires two

Question

4. The Silent Door Company manufactures soundproof doors. Each door requires two pieces of 16-gauge sheet steel measuring 94 inches by 50 inches. The standard cost of each piece of steel is $150. During the month of July, 2,040 doors were started and completed, and there were no beginning or ending work in process inventories. Accounting records revealed that 4,200 pieces of sheet steel were purchased during July at a cost of $623,700. All 4,200 pieces were used during the month.

Compute the direct materials price and direct materials quantity variances for July production, assuming the price variance is isolated at the time of purchase. Note whether the variances are favorable or unfavorable. Round to the nearest dollar. (20 Points)

Explanation / Answer

Solution:

Standard Quantity per door = 2 pieces steel sheet

Standard Cost per steel sheet = $150

Standard Quantity of steel sheets for actual production = Actual Production x Standard Quantity of steel sheets per door = 2,040 doors x 2 steel sheet per door = 4,080 steel sheets

Direct Material Price Variance = Actual Quantity Purchased (Standard Price – Actual Price)

Or Actual Quantity Purchased x Standard Price – Actual Quantity x Actual Price

= (4,200 x $150) - $623,700

= $630,000 - $623,700

= $6,300 Favorable

Direct Material Quantity Variance = Standard Price (Standard Quantity for actual production – Actual Quantity)

= $150 (4,080 – 4,200)

= $18,000 Unfavorable

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