2. World Class Rings produces class rings. Its best-selling model has a direct m

Question

2. World Class Rings produces class rings. Its best-selling model has a direct materials standard of 16 grams of a special alloy per ring. This special alloy has a standard cost of $63.30 per gram. In the past month, the company purchased 16,800 grams of this alloy at a total cost of $1,061,760. A total of 16,300 grams were used last month to produce 1,000 rings. Read the requirements Requirement 1. What is the actual cost per gram of the special alloy that World Class Rings purchased last month? (Round your answer to the nearest cent.) The actual cost per gram of the special alloy that World Class Rings purchased last month is $ Requirement 2. What is the direct material price variance? (Abbreviations used: DM = Direct materials) Begin by determining the formula for the price variance, then compute the price variance for direct materials. (Enter the variance as a positive number. Round interim calculations to the nearest cent and your variance amount to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U).) DM price variance Requirement 3·What is the direct material quantity variance? (Abbreviations used: DM = Direct materials) Determine the formula for the quantity variance, then compute the quantity variance for direct materials. (Enter the variance as a positive number. Round interim calculations to the nearest cent and your variance amount to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U).) ) DM quantity variance Requirement 4. How might the direct material price variance for the company last month be causing the direct material quantity variance? The (9) (10) (12) direct material price variance might mean that World Class Rings purchaseda . As a result, the company (11) quantity (efficiency) variance alloy than the standard allows. This accounts for the

Explanation / Answer

Answer 1. Actual Cost per gram of Special Alloy = $1,061,760 (Total Actual Cost) / 16,800 gram (AQ Purchased) Actual Cost per gram of Special Alloy = $63.20 per gram Answer 2. (Standard Price - Actual Price) X Actual Quantity Purchased = Direct Material Price Variance ($63.30 - $63.20) X 16,800 grams = Direct Material Price Variance $1,680 (F) = Direct Material Price Variance Answer 3. (Standard Quantity - Actual Quantity) X Standard Price = Direct Material Quantity Variance (16,000 grams - 16,300 grams) X $63.30 = Direct Material Quantity Variance $18,990 (U) = Direct Material Quantity Variance Answer 4. The Favourable direct material price variance might means that World Class Rings purchased a lower-quality alloy at lower price. As a result, the company had to use more alloy than the standard allows. This accounts for the unfavourable quantity (efficiency) variance.

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