The standard cost of Product B manufactured by MIT Company includes 3.60 units o

Question

The standard cost of Product B manufactured by MIT Company includes 3.60 units of direct materials at $5.20 per unit. During June, 26,900 units of direct materials are purchased at a cost of $5.01 per unit, and 26,900 units of direct materials are used to produce 7,400 units of Product B. Compute the total materials variance and the price and quantity variances. Total materials variance $ Materials price variance $ Materials quantity variance $ Compute the total materials variance and the price and quantity variances, assuming the purchase price is $5.26 and the quantity purchased and used is 27,000 units. Total materials variance $ Materials price variance $ Materials quantity variance $

Explanation / Answer

A) Quantity Price Cost Standard cost to produce 1 unit 3.60 units 5.20 per unit 18.72 Standard cost to produce 7400 units 26640 units 5.20 per unit 138528 Actual cost to produce 7400 units 26900 units 5.01 per unit 134769 1) Material cost Variance = Actual Cost - standard cost of actual output It measures overall change in cost in comparison to standard cost of units to be produced =134769-138528 = 3759 Favourable 2) Material Price Variance It measures change in cost on account of change in price of raw material used. = Actual quantity ( Actual price - standard price) = 26900 (5.01-5.20) = 5111 Favourable 3) Material quantity variance It measures change in cost on account of change in quantity of raw material used = Standard price ( Actual quantity - standard quantity) = 5.20 (26900 - 26640) = 1352 Unfavourable b) Quantity Price Cost Standard cost to produce 1 unit 3.60 units 5.20 per unit 18.72 Standard cost to produce 7400 units 26640 units 5.20 per unit 138528 Actual cost to produce 7400 units 27000 units 5..26 per unit 142020 Material cost Variance = Actual Cost - standard cost of actual output It measures overall change in cost in comparison to standard cost of units to be produced =142020-138528 = 3492 UnFavourable Material Price Variance It measures change in cost on account of change in price of raw material used. = Actual quantity ( Actual price - standard price) = 27000 (5.26-5.20) = 1620 UnFavourable Material quantity variance It measures change in cost on account of change in quantity of raw material used = Standard price ( Actual quantity - standard quantity) = 5.20 (27000 - 26640) = 1872 Unfavourable

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