Question

MacGyver Corporation manufactures a product called Miracle Goo, which comes in handy for just about anything. The thick tarry substance is sold in six-gallon drums. Two raw materials are used; these are referred to by people in the business as A and B. Two types of labor are required also. These are mixers (labor class I) and packers (labor class II). You were recently hired by the company president, Pete Thorn, to be the controller. You soon learned that MacGyver uses a standard-costing system. Variances are computed and closed into Cost of Goods Sold monthly. After your first month on the job, you gathered the necessary data to compute the month's variances for direct material and direct labor. You finished everything up by 5:00 p.m. on the 31st, including the credit to Cost of Goods Sold for the sum of the variances. You decided to take all your notes home to review them prior to your formal presentation to Thorn first thing in the morning. As an afterthought, you grabbed a drum of Miracle Goo as well, thinking it could prove useful in some unanticipated way. You spent the evening boning up on the data for your report and were ready to call it a night. As luck would have it though, you knocked over the Miracle Goo as you rose from the kitchen table. The stuff splattered everywhere, and, most unfortunately, obliterated most of your notes. All that remained legible is the following information. Direct Material A: Quantity Variance Direct Material B: Purchase Price Variance 2,400 1,400 Direct Labor l: Rate Variance Direct Labor ll: Efficiency Variance 500 1,400 Cost of Goods Sold Accounts Payable 138,000 2,010 79,000 1,800 Beg. bal. 87,900 10,700 End. bal.

Answer 1

Material A:

Material quantity variance =SP[ AQ used- SQ allowed]

           2400 = 5 [AQ used- 12000]

           2400/5= [AQ used - 12000]

            480 +12000 =AQ used

   AQ used =12480

b)Purchase price variance =AQ purchased [AP-SP]

                        = 13000 [4.5 -5]

                         =13000 * -.5

                       = - 6500 F [enter as 6500 F if needs to be entered as positive value]

c)

Quantity variance =2400 U

Material B)

Purchase price variance = AQ purchase [AP -SP]

      1400 U = 7000[AP-4 ]

       1400/7000 = AP -4

        .20 + 4 =AP

Actual price   = $ 4per gallon

b)Purchase price variance= 1400U

c)Quantity variance =SR[AQ used -SQ]

                  = 4[4800 - 5000]

                 = 4 *-200

                = -800 F (enter as 800 F if needs to be entered as positive value]