You have recently accepted a position with Lorthen Inc. As part of your duties,

Question

You have recently accepted a position with Lorthen Inc. As part of your duties, you review the variances that are reported for each period and make a presentation to the company's executive committee. Earlier this morning you received the variances for one of the company's major products for the most recent period. After reviewing the variances and organizing the data for your presentation, you accidentally placed the material on top of some papers that were going to the shredder. In the middle of lunch you suddenly realized your mistake and dashed to the shredding room. There you found the operator busily feeding your pages through the machine. You managed to pull only part of one page from the feeding chute, which contains the following information: The standard for variable overhead is based on direct labor-hours. All of the materials purchased during the period were used in production. At lunch your supervisor said how pleased she was with your work and that she was looking forward to your presentation that afternoon. You realize that to avoid looking like a bungling fool you must somehow generate the necessary "backup" data for the variances before the executive committee meeting starts in one hour. Required: 1. How many units were produced during the period? Number of units produced 2. How many meters of direct materials were purchased and used in production? Number of meters purchased 3. What was the actual cost per meter of material? Actual cost per meter $

Explanation / Answer

SQSP                                                                     AQSP                                              AQAP

38,000 x 16                                                      40,000 x16                                        40,000 x 15.71

=$608,000                                                            =$640,000                                            =$628,000

SP= Standard Price per Meter= $16

SQSP= Standard cost=$608,000

SQ= Standard quantity required for Actual Production= SQSP/SP=$608,000/16=38,000 meters

Direct Material Quantity Variance=SQSP-AQSP= - $ 32,000 U

=$608,000-AQSP=- 32,000

AQSP= 608,000+32,000

AQSP= $640,000

Direct Material Price Variance =AQSP-AQAP=$11,600 F

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