Question

The standard cost of Product B manufactured by Pharrell Company includes 2.0 units of direct materials at $6.9 per unit. During June, 27,500 units of direct materials are purchased at a cost of $6.85 per unit, and 27,500 units of direct materials are used to produce 13,700 units of Product B. (a) Compute the total materials variance and the price and quantity variances. Total materials variance $ Materials price variance $ Materials quantity variance $ (b) Compute the total materials variance and the price and quantity variances, assuming the purchase price is $6.95 and the quantity purchased and used is 26,500 units. Total materials variance $ Materials price variance $ Materials quantity variance

Answer 1

Solution:

Given information,

SP=$6.9

SQ=27400 (13,700@2per)

AP=$6.85

AQ=27,500

Now,

Price variance is AQ(SP-AP), or 27,500($.2)=$5500 (This is favorable, since the materials were obtained at below average cost.)

Quantity variance is SP(SQ-AQ), or $6.9(-1000)= -$6900 (This is unfavorable, since more than the standard quantity was used.)

Total materials variance can be obtained two ways:

SQ*SP-AQ*AP, or totalling the two variances already calculated.

SQ*SP-AQ*AP = 189060 - 188375

SQ*SP-AQ*AP = 685

2.  Given information,

SP=$6.9

SQ=27400 (13,700@2per)

AP=$6.85

AQ=27,500

Now, price variance: AQ(SP-AP)= 27,500(6.9-6.85) =1375

Quantity variance: SP(SQ-AQ)=6.9(27,400-27,500)= -690

Thus total variance: -690

(Note that negative numbers are unfavourable, positive numbers are favourable.)