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 $5.00 per unit. During June, 27,100 units of direct materials are purchased at a cost of $4.76 per unit, and 27,100 units of direct materials are used to produce 7,400 units of Product B.

(a) Compute the total materials variance and the price and quantity variances.

(b) Compute the total materials variance and the price and quantity variances, assuming the purchase price is $5.13 and the quantity purchased and used is 26,700 units.

Total materials variance $ Favorable UnfavorableNeither favorable nor unfavorable Materials price variance $ FavorableNeither favorable nor unfavorable Unfavorable Materials quantity variance $ Favorable UnfavorableNeither favorable nor unfavorable

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Total Materials Variance = Actual Material Cost - Standard Material Cost = 27100*4.76 - 7400*3.60*5 = 4204 (Favorable)

Direct Material Price Variance = Actual Quantity of Material Purchased*(Actual Rate - Standard Rate) = 27100*(4.76 - 5) = 6504 (Favorable)

Direct Material Quantity Variance = Standard Rate*(Actual Quantity - Standard Quantity of Material Used for Actual Production) = 5*(27100 - 7400*3.60) = 2300 (Unfavorable)

Part B:

Total Materials Variance = Actual Material Cost - Standard Material Cost = 26700*5.13 - 7400*3.60*5 = 3771 (Unavorable)

Direct Material Price Variance = Actual Quantity of Material Purchased*(Actual Rate - Standard Rate) = 26700*(5.13 - 5) = 3471 (Unfavorable)

Direct Material Quantity Variance = Standard Rate*(Actual Quantity - Standard Quantity of Material Used for Actual Production) = 5*(26700 - 7400*3.60) = 300 (Unfavorable)

Thanks.

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