Homework: Chapter 11 Homework Assignment Save Score: 0 of 2 pts 3 of 8 (2 comple

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Homework: Chapter 11 Homework Assignment Save Score: 0 of 2 pts 3 of 8 (2 complete) E11-28A (book/static) Question Help Ccuntry Desigris is a manufacturer of large lower pols for urban settins. The conpany has these staridards: (Click the lcon ta view the standards.) [Click the icon to view the actual results.) 1. Compute the direct material price variance and the direct material quartity variance. 2. Who is goneraly responsible for ach variarce? 3. Interpre the variances. i Actual Resuits the final variance amount to the nearest Requirement 1, Compute the direct material price vanance and the drect matenal quantity waiance. whole dollar. Label the variance as favorable (F) or unfavorable (U). Abbreviations used: DM = Direct me! First detemine the formula for the price variance, then compute the price variance for direct materials. Country Designs allocated fixed manufacturirg overhead to production based on standard direct labor hours. Last month, the company reported the following actual results for the producticn of 1,300 flower pots: Purchased 18,510 pcunds at a cost of $1.50 per pound; used 17,810 pounds to prcduce 1,300 pots worked 4.5 hours per flower pot(5,850 lolal DLH) al a cosl of $16.00 por hour Direct materials Direct labor Direct materials (resin) 13 pounds per pot at a cost of $4C0 per pound Actual variable manufecturing overhead.... . $720 per cirect labor hour for total Direc labo 40 hours at a cost of $1700 per hour clual vriab ot S42,120 $49,500 manufacturing overhead Standard variable manufacturing $7.00 per diret labor hour $50,000 10,00 per direct laber hour LH Actual fixed manufacturing overhead Standard hxed manutacturing overhead allocated based actual production Budgeted toxed manufacturing overheed Standard fxed MOH rate S52,000 Print Done Check Answer Print Done 11:10 AM E 112/2017 24 Type here to search

Explanation / Answer

E-11-28-A

Solution:

1)

Material Price Variance

Material Price Variance is the variance arises in the material cost due to difference in actual material purchase price from standard material price. Mathematically, it is calculated as below:

Material Price Variance = Actual Quantity (Standard Price – Actual Price)

Note --- Here actual quantity means actual quantity of material PURCHASED. If the question does not provide the information about material purchase, it is taken as equal to material consumed.

Direct Material Price Variance

Actual Price (AP)

$4.50

per pound

Standard Price (SP)

$4.00

per pound

Variance or Difference in Price (AP – SP)

$0.50

per pound

x Actual Quantity PURCHASED

18510

pounds

Material Price Variance

$9,255

Unfavorable

Material Quantity/Efficiency/Usage Variance

Material Efficiency (Usage) Variance measures variance in material cost due to usage/consumption of materials. It is calculated as below:

Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity USED)

Note --- Here actual quantity means actual quantity of material CONSUMED/USED

Direct Material Quantity Variance

Standard Quantity Allowed for actual production:

Actual Production

1300

flower pots

x Allowed Standard Quantity Per Unit

13

pounds per pot

Total Standard Quantity Allowed for actual production (SQAP)

16900

pounds

Actual Quantity USED (AQU)

17810

pounds

Variance or Difference in Quantity

910

yards

x Standard Price (SP)

$4.00

per pound

Material Quantity Variance

$3,640

Unfavorable

2) Responsibility for Variances

Material Price Variance – Generally, purchase department purchases materials from the market. Purchase department is expected to perform its function very prudently so that company never suffer loss due to its inefficiency. Purchase Department is held responsible for adverse price variances arises due to factors controllable by the department.

Material Quantity/Usage Variance ---- Material usage is the responsibility of production department and it is held responsible for adverse usage variance.

3) Interpret the variances

Material Price Variance – Company is purchasing the raw material at higher cost than anticipated. Company is spending higher amount on material.

Material Usage Variance – Company is using higher amount of raw material in quantity.

Direct Material Price Variance

Actual Price (AP)

$4.50

per pound

Standard Price (SP)

$4.00

per pound

Variance or Difference in Price (AP – SP)

$0.50

per pound

x Actual Quantity PURCHASED

18510

pounds

Material Price Variance

$9,255

Unfavorable

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