Shoemaker Perkins Company uses a standard cost system and had 350 pounds of raw

Question

Shoemaker Perkins Company uses a standard cost system and had 350 pounds of raw material X15 on hand on September 1. The standard cost is $8.68 per pound. The standard calls for 1.70 pounds of material X15 for each unit of the product manufactured. The company manufactured 530 units of the product in September, and had 430 pounds of Material X-15 in stock on September 30. The actual price for MaterialX-15 purchased during the month was $0.90 per pound below the standard cost. The material usage variance in Septemberwas $2,700 unfavorable. What is the purchase-price variance for Material X in September? $1,163 unfavorable $1,091 favorable $1,163 favorable $1,663 favorable $2,700 unfavorable

Explanation / Answer

1. Purchase Efficiency variance = Psx (Qa -Qs),

where Qa= pounds of material issued to production;

$2,700U = $8.68/lb. x (Qa -901) lbs.

2700/8.68 = Qa - 901

; therefore, Qa= 1,212 lbs. (used in production).

2. Pounds of material purchased = pounds used in production + increase in ending materials inventory = 1,212 lbs. + 80 lbs. = 1,292 lbs.

3. Purchase-price variance = Qax (Pa -Ps),

where Qa= actual pounds of material purchased

= (1.7*530)+ 350

= 1,251 lbs. x ($7.78 -$8.68)/lb. = $1,125.9 F

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