Calculating the Direct Materials Price Variance and the Direct Materials Usage V

Question

Calculating the Direct Materials Price Variance and the Direct Materials Usage Variance

Guillermo's Oil and Lube Company is a service company that offers oil changes and lubrication for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 26 minutes and 6.8 quarts of oil are used. In June, Guillermo's Oil and Lube had 920 oil changes.

Guillermo's Oil and Lube Company provided the following information for the production of oil changes during the month of June:

Actual number of oil changes performed: 920
Actual number of quarts of oil used: 6,860 quarts
Actual price paid per quart of oil: $5.10
Standard price per quart of oil: $5.00

Required:

1. Calculate the direct materials price variance (MPV) and the direct materials usage variance (MUV) for June using the formula approach. If required, round your answers to the nearest cent.

2. Calculate the total direct materials variance for oil for June. If required, round your answer to the nearest cent.

$ Favorable

3. What if the actual number of quarts of oil purchased in June had been 6790 quarts, and the materials price variance was calculated at the time of purchase? If required, round your answers to the nearest cent.

What would be the materials price variance (MPV)?

$

What would be the materials usage variance (MUV)?

$

Explanation / Answer

1.

MPV = $ ( 5.00 - 5.10) x 6,860 quarts = $ 686 U

MUV = ( 920 x 6.8 - 6,860) x $ 5.00 = $ 3,020 U

2. Total direct materials variance for oil for JUne = $ 686 U + $ 3,020 U = $ 3,706 U

3. MPV = $ ( 5.00 - 5.10) x 6,790 = $ 679 U

MUV = ( 920 x 6.8 - 6,790) x $ 5.00 = $ 2,670 U

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