Question

Ruby Company produces a chair that requires 5 yards of material per unit. The standard price of one yard of material is $7.60. During the month, 8,500 chairs were manufactured, using 40,000 yards at a cost of $7.50.

Determine the following:
(Enter all amounts as positive numbers.)

(a) Price variance : $ -Select-FavorableUnfavorableItem 2
(b) Quantity variance : $ -Select-FavorableUnfavorableItem 4
(c) Cost variance : $ -Select-FavorableUnfavorableItem 6

Answer 1

Answer:

(a) Price variance : $ -4000-Favorable

(b) Quantity variance : $ 19000-Favorable

(c) Cost variance : $ -23000-Favorable

Explanation:

Ruby Company

Standard price $7.60 per yard

Standard Quantity for 1 unit = 5 yards

Standard Quantity allowed for 8,500 chairs = 5* 8,500= 42500 yards

Units Manufactured 8,500 chairs

Actual Quantity 40,000 yards

Actual Cost $7.50.

Formulae

1) Materials price variance = (Actual Price * Actual Quantity)- (Standard Price * Actual Quantity)

2) Material Quantity Variance= (Standard Price * Actual Quantity)-(Standard Price * Standard Quantity)

3) Cost Variance = (Actual Cost * actual Quantity )- ( Standard Cost * Standard Quantity)

Working

1) Materials price variance = (Actual Price * Actual Quantity)- (Standard Price * Actual Quantity)

Materials price variance =(7.50 * 40,000) - ( 7.6 * 40,000)=  4000 Favorable

2) Material Quantity Variance= (Standard Price * Actual Quantity)-(Standard Price * Standard Quantity)

Material Quantity Variance=( 7.6 * 40,000) - (7.6 * 42500) = 19000 Favorable

3) Direct Material Cost Variance= Actual Cost - Standard Costs

Direct Material Cost Variance= AP*AQ- SP*SQ= 7.5 * 40,000- 7.6 * 42500

Direct Material Cost Variance= 300,000-  323,000= 23000 Favorable