Nolan Mills uses a standard cost system. During May, Nolan manufactured 15,000 p

Question

Nolan Mills uses a standard cost system. During May, Nolan manufactured 15,000 pillowcases, using 27,300 yards of fabric costing $3.05 per yard and incurring direct labor costs of $22,304 for 3,280 hours of direct labor. The standard cost per pillowcase assumes 1.75 yards of fabric at $3.10 per yard, and 0.20 hours of direct labor at $5.95 per hour.

Compute both the price variance and quantity variance relating to direct materials used in the manufacture of pillowcases in May. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

1)material price variance

2)material quantity variance

Compute both the price variance and quantity variance relating to direct materials used in the manufacture of pillowcases in May. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

1)material price variance

2)material quantity variance

Explanation / Answer

a. 1) Material price variance = Actual quantity of material purchased ( Standard price per unit of material - Actual price per unit of material)

   = 27300 ( 3.10 - 3.05)

= 27300 * 0.05

= 1365 (Favourable)

2) Material quantity variance = Standard price per unit of material ( Standard quantity for actual output - Actual quantity of material used)

     = 3.10 [ (1.75 * 15000) - 27300 ]

= 3.10 ( 26250 - 27300)

= 3255 (Unfavourable)

Conclusion:-

   1) Material price variance = $ 1365 (Favourable)

2) Material quantity variance = $ 3255 (Unfavourable)

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