Question

Acme Company’s production budget for August is 17,600 units and includes the following component unit costs: direct materials, $7.70; direct labor, $10.10; variable overhead, $6.20. Budgeted fixed overhead is $33,000. Actual production in August was 18,810 units. Actual unit component costs incurred during August include direct materials, $8.50; direct labor, $9.10; variable overhead, $6.90. Actual fixed overhead was $34,600. The standard direct material cost per unit consists of 11 pounds of raw material at $0.7 per pound. During August, 319,770 pounds of raw material were used that were purchased at $0.50 per pound. Required: Calculate the materials price variance and materials usage variance for August

Answer 1

Answer:- Material price variance = $63954 F

Material Quantity variance = $79002 U

Explanation-

Material price variance = (Standard price – Actual price) * Actual quantity purchased

                                       = ($0.70 per pound - $0.50 per pound)*319770 pound   

                                       = $63954 Favorable

Material Quantity variance = (Standard Quantity- Actual Quantity used)*Standard price

                                              =(206910 pounds – 319770 pounds)* $0.70 per pound

                                             = $79002 Unfavorable

Where:-

Standard Quantity = No. of pound per unit*Actual output

                               =11 pounds per unit *18810 units =206910 pounds