Best Sign Company produces billboard sign frames. These frames are constructed t

Question

Best Sign Company produces billboard sign frames. These frames are constructed to make billboards you read as you drive down the highway.

Each frame typically requires 1,100 pounds of boards.

                The standard cost for granite is estimated at $270 per ton (2000 pounds).

                During a recent month 500 frames were constructed.

The company purchased and used 330 tons of material at a cost of $250 per ton.

Compute the following:

·         Actual cost of direct materials

·         Standard cost of direct materials

·         Total materials variance (standard cost v. actual cost)

·         The favorable or unfavorable materials price variance

·         The favorable or unfavorable materials quantity variance

Explanation / Answer

Actual cost of direct materials = 330 x $250 = $82,500
Standard cost of direct materials = [(500 x 1,100) / 2000] x $270 = $$74,250
Total material variance = 82,500 – 74,250 = $8,250 unfavorable
Material Price variance = (Standard Price – Actual Price) x Actual quantity
Material Price variance = (270 -250) x 330 = $6,600 favorable
Materials quantity variance = (Standard quantity –Actual quantity) x Standard Price
Materials quantity variance = (275 - 330) x 270 = $14,850 Unfavorable

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