Use the following information to complete Questions 2 and 3. Buffett Enterprises

Question

Use the following information to complete Questions 2 and 3. Buffett Enterprises produces a product called Slugger. The direct materials and direct labor standards for one bottle of Slugger are given below: Standard Quantity Standard Price or Standard Cost of Hours 7.2 ounces 0.4 hours Rate $2.50 per ounce $10.00 per hour Direct Materials $18.00 $4.00 Direct Labor During the recent month, the following activity was recorded Twenty thousand ounces (20,000) of material were purchased at a cost of $2.40 per ounce. All of the material was used to produce 2,500 bottles of Slugger . Nine hundred hours (900) of direct labor time were recorded at a total labor cost of $10,800 3) What are the Material Quantity and Price Variances for the Month? What is the Material Spending Variance for the month? 4)

Explanation / Answer

Material Quantity Variance = (Total Standard quantity - Total Actual quantity) x Standard Rate per ounce

...........................................= [(7.2 x 2,500) - 20,000] x $2.5

...........................................= -$5,000 or $5,000 Unfavorable

Material Price Variance = (Standard rate per ounce - Actual rate per ounce) x Actual quantity used

......................................= ($2.50 - $2.40) x 20,000

......................................= $2,000 Favorable

Material Spending Variance = Material Price Variance + Material Quantity Variance

.............................................= $2,000 - $5,000

.............................................= -$3,000 or $3,000 Unfavorable

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